The People's Bank of China (PBOC), the central bank, calls for caution on possible financial risks arising from fluctuations in the real estate sector.
This is the first time ever that the central bank has issued warnings on the real estate sector.
In its Financial Stability Report 2006 issued this weekend, which summarizes the country's financial operation in 2005, the PBOC said when housing prices spiraling up and large amount of credit going to the real estate sector, attention should be paid to potential risks drived from housing market fluctuations.
It said that any major price drops in the sector will devalue the mortgages in the hands of banks, which will eventually lead to further drops in housing prices.
Despite the warning, the central bank report said there is still a considerable amount of market demand for houses that has not been met, including both investment and speculative demands.
As a result, the central bank will continue to maintain a continuous policy, with the key being put on the control of over investment in the real estate sector.
By the end of 2005, the outstanding housing loans granted by the country's 16 major banks stood at 2.0258 trillion yuan (about 259.7 billion US dollars), increasing 177.2 billion yuan over the previous year.