Shanghai's banking regulator yesterday emphasized the importance of the 40 percent down-payment rule for second homes in a bid to prevent real estate speculation.

Also over the weekend, the Shanghai Housing Guarantee and Administration Bureau said it has ordered real estate developers to register their sales plans with the local industry watchdog to prevent them holding the properties for higher profits.

Banks in Shanghai must strictly comply with the down-payment requirement on second homes, the Shanghai Bureau of the China Banking Regulatory Commission said.

"Banks are banned from bypassing the rules under the excuse that they can't get clients' credit records due to lack of access to the central bank's individual credit database," the local banking regulator said.

The regulator also highlighted irregular practices such as banks claiming credit records couldn't be obtained because it was hard to investigate applicants' property deals outside Shanghai.

Banks also can't use their own definition of what constitutes a second home, the regulator said.

In 2007, the authorities asked banks to take at least 40-percent down payment with an interest rate at least 10 percent higher than the benchmark rate on second homes to drive out speculation in the then red-hot real estate market.

However, when the market lost steam from the second half of last year, many banks ignored the rule on interest rates and some even ignored the down-payment requirements.

The Shanghai branch of the Bank of Communication sticks to the down-payment requirement but offers clients a discount on interest rates, according to an unnamed credit officer.

"In principle, we offer a 25 percent discount on the interest on second homes while applicants can even get a 30 percent discount, the highest discount, if they apply for a credit card," the officer said. "We were told of the notice last week and we are still awaiting superiors' order."

The loose credit practices, together with policies to boost a healthy real estate industry issued last year against the fallout from the global financial crisis, have fuelled property transactions in Shanghai and other major cities.

New-home sales in Shanghai, excluding those related to urban redevelopment, jumped nearly 70 percent to 8.7 million square meters during the first half of this year. That compares with 8.9 million square meters sold in the whole of 2008, according to Shanghai Uwin Real Estate Information Services Co.

In the existing-home market, meanwhile, 138,400 units were sold, an increase of 9.3 percent compared with last year's total, according to Century 21 China Real Estate research.

The average price of new properties rose to 13,918 yuan (US$2,038) per square meter between January and June in the city, up 2.8 percent compared with the average price last year.

And existing properties were sold at 11,793 yuan per square meter during the same period, up 9.1 percent from last year's average, Liu Haisheng, director of the Shanghai Housing Guarantee and Administration Bureau, told a municipal conference on Friday.

The bureau's new policy, effective from July 1, is designed to prohibit real estate developers from holding their properties for higher profits.

During market booms, some developers would deliberately slow their sales process to reap more profit as prices continued to rise.

The bureau said it would require developers to launch property sales under certain timelines or their credit record might be affected.

(Shanghai Daily July 20, 2009)