China vows to keep hot money out of property market

The directive from the State Council, China's cabinet, will serve as a guideline for local authorities and ministries, including the People's Bank of China and the China Banking Regulatory Commission, to work out detailed policies.

Relevant departments must enhance monitoring of loans and cross-border investment to prevent illegal inflows of capital into the property market and to avoid the impact of overseas hot money on China's real-estate market, the cabinet said.

It said the central bank and banking regulator should step up oversight and window guidance of mortgage lending.

About one-sixth of China's nearly 10 trillion yuan ($1.5 trillion) in new loans last year flowed into the property sector.

Concerned that a property bubble could stir social and economic instability, Beijing has vowed to combat overly fast price increases, although its moves to date, such as restricting sales tax exemptions, have been relatively mild.

The cabinet urged local authorities, especially in cities where housing prices are rising sharply, to increase the supply of affordable housing.

It reiterated that it would curb house buying for investment and speculation purposes and keep the minimum down payment for purchases of second homes at 40 percent.

China's central bank said this week that it would pay particularly close attention to the property market in 2010 while managing inflationary expectations.

(Reporting by Zhou Xin and Tom Miles; Editing by Alan Wheatley)