China banks cutting loans for homes in small cities - think-tank

BEIJING Wed Aug 21, 2013 2:43am EDT

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BEIJING Aug 21 (Reuters) - China's banks have reduced lending to property projects in smaller Chinese cities due to concerns about an excess supply of homes in those areas, the chief economist at a state think-tank said on Wednesday.

Fan Jianping of the State Information Centre said third- and fourth-tier Chinese cities are sitting on a large inventory of unsold commercial homes following big land sales by local authorities in recent years.

Small Chinese cities have been cited by analysts as focal points for the country's property risks because their oversupply of homes is exacerbated by falling demand, as residents migrate to large towns in search of a better living.

"For many banks, when they hear that a developer wants new loans, their first concern is which city it is in," Fan told reporters.

"If they hear that you are in a third- or fourth-tier city, even if you are Country Garden, China Vanke , Wanda Group or other big firms, banks are still very cautious and will be reluctant to give you the money," he said.

When asked if China's government would intervene to raise demand for homes in small cities, Fan said authorities are loath to do so even though the glut of unsold houses have created "ghost towns" that have few residents.

There's no data on how many "ghost towns" exist, but several have gotten media and public attention, particularly Erdos in Inner Mongolia.

The Chinese government has intervened heavily in the country's frothy real estate market for nearly four years in an attempt to cool prices. It has restricted the number of homes families can buy and tightened funding for developers.

But despite the controls, China's property prices are still hitting record levels. Data last week showed new home prices rose 7.5 percent in July on an annual basis, the sharpest rise this year.

China's official property data does not have comprehensive price information on small cities, though three cities recently cited by data provider China Real Estate Information Corp as danger zones saw annual price gains of 7 percent in July.

The three were Ganzhou in the eastern province of Jiangxi, Nanchong in Jiangsu, another eastern province, and Zunyi in Guizhou in southwestern China. (Reporting by Koh Gui Qing and Shao Xiaoyi; Editing by Richard Borsuk)

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