Now it came the official document (GuoFa[2010]No.10) regarding raising down payment to 50% of property value yesterday. You may find the whole text therein in Chinese on this blog. The core idea that attracted most eyeballs in the market is the following:

Where the family (including the loan borrower, spouse and underaged children) buys for self use  the first house/apartment with a GFA of over 90 sqm, the down payment shall not be less than 30%; where a family buys a second house/apartment using bank loans, the down payment shall not be less than 50% and the interest rate shall not be lower than 1.1 times the base rate; where a third or further house/apartment is bought with bank loans, the down payment and interest rate thereof shall be further substantially raised and shall be specified by banks at their discretion according to their own risk management.

The Notice also asked the Ministry of Housing and Urban-rural Development to work with central bank, PBOC and CBRC (China Banking Regulatory Commission) to formulate standards on determining whether a house is a second house, as pointed out in my previous blog that how to determine the second house will remain a technical issue for implementing the new measures.

The Notice went further to require that in cities where property price is overly high with excessive price hike and strained house supply, commercial banks may in light of risk exposure suspend extending bank loans for a third or further house/apartment; also provision of housing loans shall be suspended to non-local residents who cannot present the local tax returns or social insurances certification of more than one (1) year. Local governments may in consideration of their local conditions step up provisional measures of limiting the number of houses/apartments that can be purchased within a certain period of time.

These lines showed the firm inclination of the central government to rein in the property market. However since such requirements are not mandatory, I remain skeptical about whether such requirement will ever be seriously taken by local governments. Also the Notice did not specify those particular cities falling within its ambit though there is no doubt that first-tiered cities like Beijing, Shanghai are caught thereby. we are not sure whether a concrete list of cities subject to the Notice will be published or not.

As to foreign buyers purchasing property in China, the Notice reiterated the existing regulations that have been in place since 2006. No change in this regard.

In sum, the Notice targeted only a thin bunch of cities in China leaving a vast pool for real estate investment in second- and third-tiered cities. I believe local governments other than those in first-tiered cities will, despite the rules restricting foreign investment, still leave an open door for foreign individual buyers in their local property market.

It is also worth a note that commercial real estate is not subject to the regulation of the Notice.