The Shanghai Branch of the People's Bank of China (PBC) called on local financial institutions to relax their mortgage lending limits on older properties earlier this week at a private meeting with bankers to discuss latest financial issues in Shanghai.

Pan Xuebei, a spokesman for PBC Shanghai Branch, yesterday said that the recommendation was aimed at helping to bring stability and steady growth to the property market.

The rapid fall in prices and transactions in Shanghai's property market as a result of the government efforts to clamp down on excessive speculation has apparently raised concern about the potential ripple effect on the city's economy in general, and the financial sector in particular.

Pan said that his bank had only made a "suggestion" which was not "compulsory." It would still be up to the banks to make their lending decisions, he said.

Property analysts expect this directive from the central bank in Shanghai will help increase the availability of mortgage financing to buyers of older apartments in the secondary market.

"It is a positive thing in that the banks are going to have more flexibility in deciding on loans, and property older than 10 years will have more chances of getting loans," said Michael Hart, Head of Research of Jones Lang LaSalle China.

But he said the repercussion of this proposed policy shift could be limited, because property older than 10 years is not the main stream of the market, and investors care more about market sentiment than bank loans.

"Many people we talk to are still interested in Shanghai's property but they have realized the market is quiet and they're waiting to see where it will go," said Hart.

Seven ministries, including the PBC and the Ministry of Construction, issued a joint decree on May 11 that set out a wide range of measures to cool down the property market. These include a 5 percent tax on people who sell within two years of purchasing a property. The decree, effective from June 1, allows local governments to make detailed policies according to their particular situation.

Shanghai doubled its sales tax on luxury homes to 3 percent from the end of May in response to the central government's directive to curb property speculation.

The city's government has also doubled property tax - to 3 percent - on luxury homes, defined as those in the city centre that cost more than 17,500 yuan (US$2,108) per square meter, with an area of at least 140 square meters. For cheaper and smaller flats, the current rate of 1.5 percent remains unchanged.

The tax hike was just one of a host of measures to fight speculation. The government has already ordered banks to require higher down payments and restrict remortgaging.

Lina Wong, managing director of Colliers International (East China), said that the proposed credit loosening for old housing won't affect the market much.

Colliers conducted a survey of 100 Shanghai local people earning about 5,000 yuan/month (US$617) who had bought a house in last six months. The results showed that over 50% of people had paid the 50 percent downpayment. So, "a small concession in the housing loan rate won't cause much difference," said Wong.

(China Daily July 29, 2005)