China's New Mortgage Rules, The Latest Efforts To Cool Real Estate Market

As China's housing market displays an extreme price gap between the biggest and the smallest cities, their central banks are increasing down-payment costs and interest rates for second-home mortgages, reported Bloomberg Businessweek.

The new mortgage rules comes at a time when the country is in for a real estate bubble burst, where some cities are increasing prices of properties at an unmanageable rate. 

Local governments of the country are saying that it needs to happen to limit the number of homes someone can buy. In some overpopulated cities such as Beijing, Shangai and Shenzhen, there's a housing shortage for low to middle-income earners. There is an abundance of housing available in smaller cities, which show weak performances for the market, reported The Financial Times.

A new home in China is also expensive, Bloomberg reported prices have increased for nine months straight and there are property taxes in cities like Shanghai that have effectively curbed home buying in the past. In Beijing it's so expensive, you can buy a home for an average of $4,000 per square meter, reported The Times.

"This is a final effort by Premier Wen to put a stamp on the direction of policy before he leaves office and the message is clear: there should be no relaxation of property market controls," said Mark Williams, an economist at London-based Capital Economics Ltd., in an email interview with Bloomberg. "This is a sensible policy. Even allowing for the construction slowdown of last year, the real estate sector remains on an unsustainable path."

The country is also coming down hard on real estate businesses by taking away loans and preventing fundraisers if they're seen banking on lands and increasing home prices, reported Bloomberg.

"In the short term, it will help reduce the transaction volumes of second-hand home sales and somewhat contain speculative property investment," Liu Li-Gang, chief economist of China at Australia & New Zealand Banking Group Ltd told Bloomberg.