Real estate sector spending expected to drop in 2010

15:06, March 08, 2010      

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A London-based professional association issued a weekly report Friday saying that fixed asset investment (FAI) in the Chinese housing sector will drop from last year's record high because of excess liquidity and inflation concerns.

The Royal Institution of Chartered Surveyors (RICS) said in its report that monthly growth in FAI in real estate is now growing at three times the pace of 2004 and at close to double the pace of 2007.

According to calculations by the institution and economy. com, annual real estate investment spending has risen from around 1.5 trillion yuan ($219.7 billion) in 2004 to roughly 4.5 trillion yuan ($659.2 billion) last year.
"It would not be a surprise, however, to see this trend moderate somewhat in 2010 as attempts to rein in monetary stimulus gain traction," the report said.

According to the data released by the National Bureau of Statistics, FAI growth on a year-to-date basis fell for the third consecutive month in December to 30.5 percent, after posting strong gains over the course of 2009.

Monetary authorities have taken measures to curb lending in recent months. The year-on-year growth of broad money supply (M2) in January declined to 25.98 percent from 29.64 percent in November, according to the People's Bank of China (PBC), the central bank.

The RICS suggested that February's inflation data, to be released this week, will be key. The January consumer price index (CPI) surprised by registering a 1.5 percent increase year-on-year, lower than the median forecast of 2 percent from a Reuters poll.

However, the RICS said, "Any sign of a monthly inflation surge could renew jitters that Chinese monetary policy tightening may start to accelerate."

Patrick Chovanec, an associate professor at Tsinghua University, said that much of the central government's efforts to dampen real estate investment boils down to the ability to control lending, which is not easy.

The annual lending target for last year was 5 trillion yuan ($732.5 billion), but the actual new loans made during the course of 2009 were above 9.4 trillion yuan ($1.4 trillion), according to the PBC.

Chovanec said the government is growth-biased at the moment, but inflation above 5 percent will trigger a reverse in the policy orientation.

Source: Global Times
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