The Chinese government has decided to regulate the country's real estate mortgage evaluation sector to reduce loan risks of the banking sector.

A leading official of the Housing and Real Estate Department of the Ministry of Construction said Tuesday the move will be launched by the ministry, in cooperation with the People's Bank of China, or the country's central bank, and the China Banking Regulatory Commission.

According to a circular issued recently by the ministry, the central bank and the commission, commercial banks should evaluate the property offered for mortgage before granting the mortgage loan.

The value of property to be mortgaged should be set through consultations between the parties involved, or by specialized real estate mortgage evaluating institutions, according to the circular.

Under the circular, real estate administrative departments are forbidden to ask mortgage loan applicants for commissioning the evaluation or designate selected real estate evaluation institutions to do the job.

The evaluation should be commissioned, in principle, by commercial banks, unless the banks and the lenders of the loans have written agreement, and the evaluation fee should be covered by the banks that commission the job.

Real estate evaluation institutions should stick to the principle of independence, objectivity and impartiality, follow the rules on real estate evaluation, and should not compete for business by agreeing to demands for overestimating or underestimating the value of properties for kickbacks.

There are about 3,500 real estate evaluation groups with 32,000licensed evaluators in China, according to the Association of Real Estate Evaluator and Agents.

(Xinhua News Agency January 25, 2006)