China’s banking regulator has directed lenders to test the effect of an approximately 50 percent decline in house prices in major cities where there has been a sharp increase in prices, according to regulatory and banking sources.
The move is an indication that Beijing is focused on deflating record high prices and fighting property speculation.
The government fears that high prices in key cities are feeding on themselves and making it hard for ordinary people to purchase homes.
“This is another key signal that the government is trying to give, that it is quite determined to keep property prices under control, even though it’s quite unlikely that there will be any new tightening measures in the short term,” said David Ng, a property analyst at Royal Bank of Scotland in Hong Kong.
“It certainly won’t have any loosening measures for now,” added Mr. Ng.
Chinese banks could sustain up to 30 percent decline in housing prices with no sharp increase in non-performing loan ratios, based on an earlier stress test conducted throughout China.
“This is a new round and will be carried out only in key cities where prices have risen fast,” said a banking official who declined to be named.
Three other sources said the China Banking Regulatory Commission (CBRC) has also ordered banks to tighten mortgage terms for people buying third homes in cities like Beijing, Hangzhou, Shanghai and Shenzhen.
Banks must require at least 60 percent down payment and charge interest of at least 1.5 times the benchmark rate of the central bank, they said.
These new requirements clarify guidelines released in April by the Cabinet, directing banks to increase mortgage rates and down payments for third-home buyers.
Depending on their assessment of risks, banks can also stop lending to third-home buyers in cities where prices of homesare too high or there is a home supply shortage, said the State Council.