By staff reporter Yu Dawei

Mortgage activity in Shanghai withered in August as the Chinese government’s tight credit policy discouraged lending and cautious consumers put their cash in savings accounts rather than real estate.

According to the Shanghai branch of the People’s Bank of China, residential mortgage loans totaled 290 million yuan in August, sharply less than the 2.8 billion yuan borrowed in July.

The central bank also said foreign banks increased their real estate activity in China’s largest city, while Chinese financial institutions cut back. Foreign banks increased lending to property developers in August to 1.04 billion yuan, while domestic lenders reduced loan volume for developers by 4.62 billion yuan.

Meanwhile, the report said, bank savings deposits grew by 50.9 billion yuan, up 20.6 billion yuan year-on-year.

The central bank said more Shanghai consumers were banking their money due to a pessimistic outlook for the nation’s equity markets.

A banking executive told Caijing that mortgage lending shrank mainly in reaction to rising risks in real estate and home mortgage securities. Banks have yet to increase their risk ratings for mortgages, but are more prudent about property developer loans.

Sun Jianping, an analyst at Guotai Junan Securities, said the liquidity condition of Shanghai real estate companies may worsen as risk control measures prompt banks to tighten their lending to property developers.

Meanwhile, home prices have slumped between 10 and 20 percent in central and suburban areas. Property developer Vanke, for example, offered buyers a 20 percent discount.

The city’s real estate agents expect the market to remain quiet well into autumn, even though September is traditionally a hot month for home shoppers.

In the first week of September, housing deals were off 34 percent from August levels, sinking to their lowest point in 18 weeks.

1 yuan = 14 U.S. cents