REGULATORS have announced a policy to tighten regulation for loans to the real estate sector and home mortgage loans to guard against systemic risks and improve the stability of the financial system.

The policy took effect Friday, but will provide a “transition period” of up to four years for those that fail to meet the standards.

The People’s Bank of China and the China Banking and Insurance Regulatory Commission said in a joint statement that they will require domestic banks to limit the ratio between their outstanding property loans and total yuan loans.

The two regulators also set ceilings for the ratio of home mortgage loans.

The upper limits are set in five different grades based on factors such as asset sizes and functions of financial institutions.

The caps for large banks are the highest at 40 percent for property loans and 32.5 percent for home mortgage loans, involving lenders such as the Industrial and Commercial Bank of China and the China Construction Bank.

Medium-sized banks, such as China Merchants Bank, will see their ceilings set at 27.5 percent and 20 percent, respectively.

The move underscores authorities’ determination to guide the bubble-prone sector and curb leverage at some of the nation’s largest developers.

“The new policy is in line with the direction of strengthening supervision and preventing bubbles,” said Chengyu Huang, an investment manager at China Cinda (HK) Holdings Co. “That will further dampen investor sentiment toward the real estate stocks.”

A gauge of Shanghai-listed developer stocks slumped 10 percent last year, while the benchmark Shanghai Composite Index rallied 14 percent.

The new policy can “help market participants form stable policy expectations, and help promote stable, healthy and sustainable development of the real estate market,” the statement said. (SD-Xinhua)