China : China Bank Regulator Said to Plan Review of Developers Debts.

Byline: babalu03

China s banking regulator plans to review debt levels at some real-estate developers on concern the companies borrowings are fueling excessive gains in property prices, a person familiar with the matter said.

The China Banking Regulatory Commission wants to reduce leverage at developers that bought land at inflated prices and at large state-owned companies that have entered the property market, the person said, declining to be identified because the plans haven t been made public.

Excessive borrowing by some developers threatens to cause an increase in delinquent debts should prices collapse, the person said. China s home prices rose at the fastest pace in a year in September as government stimulus spending drove a recovery in the world s third-largest economy.

Should lending be tightened, the impact on the property market would be huge, said Liu Xihui, a Shenzhen-based analyst at Ping An Securities Co. Restrictions on second mortgages imposed after June 30 had a big impact on demand both among property investors and people looking for new homes, he said.

At the end of August, liabilities exceeded 90 percent of assets at more than 160 developers that have borrowed at least 50 million yuan ($7.3 million) each from banks, the person said. New loans for real-estate development surged 121 percent from a year earlier in the first half to 403.9 billion yuan, according to the People s Bank of China s latest quarterly report.

New credits for home purchases more than doubled to 479.3 billion yuan in the period. A gauge tracking 24 real estate firms traded in Shanghai has climbed 120 percent this year, the best-performing group on the benchmark Shanghai Composite Index.

Chasing Market Share

Some banks loosened mortgage down payment requirements this year to boost market share, and some paid commissions to developers and real estate agents for referring borrowers, the person said. Almost 10,000 mortgages defaulted in the first eight months of 2009, taking the total to 140,000 at the end of August, the person said.

Regulators in Hong Kong, Singapore, Taiwan and India are also trying to control property lending, after rising prices across Asia fueled concerns that bad debts could spiral. The Reserve Bank of India last week ordered lenders to set aside more funds to cover property loans.

While the CBRC doesn t have the power to force developers to cut borrowings, it can direct banks to reduce lending to the industry. The regulator will mainly target state-owned companies whose main businesses are outside of real estate, the person said.

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