Banks in Shanghai have agreed to stop giving commissions to housing agents from 2010 as they hope to encourage the development of a healthy mortgage market, the local banking regulator said yesterday.

More than 30 banks in the city, which are under the Shanghai Banking Association, promised to ban commissions to property agents from January 1 after such practices were found to be risky, the Shanghai Bureau of the China Banking Regulatory Commission said yesterday in a statement.

The banks include China's big five banks and overseas lenders such as HSBC, Citigroup and Standard Chartered.

"The commissions harm the principle of fair competition and hurt the industry's general interest," the banking watchdog said in the statement.

Previously, banks offered commission of up to 1.5 percent of the home transaction's value to agents who bring individual mortgage business to them. Banks compete with each other to lure clients as individual mortgage loans are the most lucrative business in retail banking.

The commission-driven model also propelled some agents to seek higher returns from banks by booking fake mortgages.

Some agents recommend to their clients banks that offer agents the highest commission regardless of the mortgage applicants' interest. Such practices became more popular this year as individual mortgages started to pick up from March in Shanghai as home buyers rushed to buy properties as they feared prices would continue to rise.

The association intends to publicly name banks that still give commissions and they will lose membership of the local banking body as well as face punishment or a fine.

The big five state-owned banks - the Industrial and Commercial Bank of China, the Bank of China, China Construction Bank, the Agricultural Bank of China and the Bank of Communications - had already stopped offering commissions to housing agents since October, sources told Shanghai Daily earlier.

China's real estate market recovered this year on easy credit practices and tax cuts on home purchases pushing up property transactions and prices. Housing prices in 70 major cities jumped 5.7 percent last month from a year ago.

New individual mortgage loans grew by 10.74 billion yuan (US$1.57 billion) in November in Shanghai.

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