- The Washington Times - Monday, May 29, 2006

BEIJING (AP) — China’s Cabinet took aggressive steps yesterday to cool off one of the hottest parts of the red-hot economy, ordering measures to restrain soaring housing prices and discourage real estate speculation.

The new measures by the State Council include tighter lending standards and higher minimum down payments.

The steps were taken a week after banks were told to favor families buying their first homes and to cut back on lending to investors in expensive luxury villas and apartments.

The measures were taken to “promote the healthy development of the real estate market,” the official Xinhua News Agency reported the State Council as saying.

China’s leadership periodically has tried to rein in the economy, which has grown about 10 percent in each of the past three years.

In April, the government called for renewed efforts as investment in housing, factories and other fixed assets rose, prompting fears that banks were lending carelessly and could end up with bad debts.

Housing prices have been a particular concern because their rapid climb is touching off resentment among working-class Chinese and widening a politically volatile gulf between the rich and the poor.

The government says housing prices rose an average of 5.5 percent in the first three months of this year compared with a year ago. But increases are much greater in specific areas.

Under the latest measures, developers are required to charge down payments of at least 30 percent, up from 20 percent, according to the State Council announcement. It said low-income families still can qualify for the 20 percent level for properties smaller than 970 square feet.

In addition, developers will be required to supply a minimum of 35 percent of the capital for new properties, according to the announcement, which did not give the earlier level.

Owners who sell a property less than five years after purchasing it will have to pay tax on their proceeds, up from a two-year limit, Xinhua said. It didn’t say how the tax would be calculated.

Real estate has been one of the most visible signs of the growing gap between China’s rich and poor.

The Communist government is eager to encourage private homeownership.

But the surge in construction has fueled social strains as farmers and factory workers are evicted to make way for luxury apartments and walled villa compounds for an elite and small middle class that has benefited from two decades of capitalist-style economic reforms.

Thousands of protests, some of them violent, have been reported throughout the country over complaints that displaced villagers receive little or no compensation for seized land.

Chinese banks reported total outstanding loans of $2.6 trillion at the end of March, up 14.7 percent from the year ago, the government newspaper China Daily said last week, citing official figures.

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