China's regulators on Thursday 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 People's Bank of China and the China Banking and Insurance Regulatory Commission will require domestic banks to limit the ratio between their outstanding property loans and total RMB 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 the China Merchants Bank, will see their ceilings set at 27.5 percent and 20 percent, respectively. 

The policy will take effect on January 1, 2021, but will provide a "transition period" of up to four years for those that fail to meet the standards.