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China curbs loan commissions
Published on: 2010-01-14
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SHANGHAI—China has told banks to stop giving commissions to real-estate agents for introducing mortgage customers, as Beijing tries to rein in an overheated property market and unscrupulous lending practices.

The warning from a banking industry association came after an unexpected decision by the central bank to tighten the reserve requirement for commercial lenders, a move aimed at curbing loan growth amid mounting concerns over inflation and a broad-based asset bubble.

The China Banking Association said Wednesday that the new guideline on housing-loan commissions has been in effect since Jan. 1. The association, which is under the directive of China's banking regulator, didn't specify whether banks that ignore the guideline would be penalized.

"High commissions paid by banks to real-estate agents have seriously disturbed the [financial and real-estate] markets and impacted banks' credit business," the association said in a statement.

Agents could receive commissions ranging from 1.2% to 1.5% of a home's value from banks, the state-run Shanghai Securities News reported, citing several agents.

The practice isn't unique to China but has raised concerns among regulators, as banks often lowered lending rates or relaxed lending practices to secure individual mortgage loans, a lucrative sector for lenders, while real-estate agents helped borrowers forge mortgage documents to get higher commissions.

Individual mortgage loans soared last year amid a property-sector boom formed by supportive measures from the government, which included tax breaks, smaller down-payment requirements and lower loan rates for first-time home buyers.

Central-bank data show banks extended 952 billion yuan ($139.45 billion) worth of individual mortgage loans in the first three quarters of 2009, nearly four times the amount banks issued in the same period of 2008.

Property prices have hit record highs in major cities in China since the third quarter of 2009. Prices in more affluent coastal areas were especially strong. In December, prices of new housing in Shanghai rose to an average of 20,187 yuan per square meter, up 8% from November, government data show.

Sizzling property prices have worried not only ordinary citizens but also top government leaders. In a rare press interview in December, Premier Wen Jiabao expressed his concerns about what he described as an "overly rapid" rise in real-estate prices.

Fears that high property prices would fuel inflation and threaten social stability have prompted Beijing to begin tightening its policies on the real-estate market and home purchases. Measures include the introduction of a nationwide minimum down payment on land purchases, and the withdrawal of a favorable business-tax policy on the purchase of second homes.

In a clear signal that Beijing is shifting its policy focus toward pre-empting inflation risks from single-mindedly supporting economic growth, the People's Bank of China said Tuesday it will raise the proportion of money that banks must deposit with the central bank by 0.5 percentage point from Monday, reducing the amount of cash banks have available for lending.

Regulators also told banks to tighten lending for second-home buyers, as part of efforts to prevent speculation. China's cabinet reiterated on Sunday that buyers of second homes will have to pay a minimum down payment of 40%, double the level for first-time home buyers.

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