CHINA has tightened the mortgage market for expatriates and observers said this may cut the amount funds available for them to get housing loans.

The National Development and Reform Commission has issued a new rule which compels foreign banks in China to comply with their medium and long-term foreign debt quota. The NDRC, China's top economic planner, said the funds in the quota should not be lent out as housing loans to expatriates.

The NDRC also said that yuan-backed loans of more than one year from overseas markets must be included in the foreign banks' medium- and long-term foreign debt quota as it seeks to strengthen control of the quota.

Foreign bankers said the new move may lead to a shrinking liquidity pool for expatriates, including those from Hong Kong, Macau and Taiwan, to get mortgages in China.

"The new rules will largely affect foreign banks' mortgage business as currently our major customers are expatriates," said the head of the loan operations center with a foreign bank, who declined to be named. ''With fewer channels to finance the mortgage business for expatriates, we have to charge higher interest rates to our customers to sustain profit and this might just put off some potential borrowers.''