The People's Bank of China said it will scrutinize loans offered to property developers and home buyers since June 2001 to check for compliance with lending rules and possible fraud.

Private and state-owned developers poured 486 billion yuan (US$59 billion) into real estate projects in the first nine months of this year, 29 percent more than a year earlier. That led Premier Zhu Rongji to express concern last month about the pace of construction. Some cities have a glut of housing, while in cities such as Shenzhen, Shanghai and Guangzhou, prices have surged.

"The move comes at the right time," said Peng Dingrui, a spokesman at China Construction Bank, which has about 37 percent of the home-loan market with 187 billion yuan in mortgages at the end of last year.

"The central bank wants to make sure that while more domestic banks are targeting mortgage lending, they are not doing so at the cost of accumulating more bad loans," said Peng.

Housing prices rose 6.1 percent to an average of 2,357 yuan per square meter in the first 10 months, according to the National Bureau of Statistics. In affluent cities like Shanghai, some homes are priced at more than 10,000 yuan per square meter - equal to three-quarters of the average city-dweller's annual disposable income, according to the Shanghai Statistics Bureau.

"The central bank is worried about a bubble as people are snapping up properties," said Lien Beng Thong, general manager of corporate services at CapitaLand China Holdings Group of Singapore. CapitaLand has invested more than US$500 million in Chinese property projects.

Lenders must strictly observe lending rules, including a requirement that loans to developers must not exceed 70 percent of a project's value, the central bank's statement said.

(eastday.com December 6, 2002)