Signs of a bubble as property market rebounds in China

08:23, August 12, 2009      

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China's urban housing market picked up momentum in July as a result of a strengthening economy and robust lending, reinforcing worries over asset price bubbles amid abundant liquidity.

Home prices in 70 major Chinese cities increased 1 percent last month from a year earlier, extending a 0.2 percent rise in June after dropping for six straight months, the country's top economic planner said yesterday.

On a month-to-month basis, property prices in July advanced 0.9 percent, the fifth consecutive monthly gain, according to a statement from the National Development and Reform Commission. In addition, the growth of housing sales by value accelerated to 60 percent in the first seven months from a 53 percent gain in the first half, the National Bureau of Statistics said in a separate statement.

And real estate investment in China during the seven-month period rose 11.6 percent, up from an increase of 9.9 percent in the six months ending June 30, according to the statistics bureau.

"July's data showed a greater risk of bubbles building," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "If such a boom continues in the coming months, it wouldn't be surprising to see some policy fine-tuning in the property sector."

In the first six months of this year, banks in China extended a record 7.37 trillion yuan (1.08 trillion U.S. dollars) in new loans, eclipsing the minimum target of 5 trillion yuan set by the central government early this year. The surge in bank lending threatens to create asset bubbles, government officials and analysts cautioned.

Wei Jianing, an analyst at the Development Research Center under the State Council, has estimated that about 20 percent of new loans in the first half had been channeled into the nation's property and stock markets.

The benchmark Shanghai Composite Index has jumped nearly 90 percent this year after dropping 65 percent in 2008.

Housing prices also have rebounded in cities previously deemed overpriced such as Shanghai, Beijing and Guangzhou.

The country's banking regulator early this month pledged to boost supervision over bank loans for corporate working capital and has required lenders to ensure loans for investment projects are actually put to use in the real economy. The watchdog also reiterated the importance for banks to follow the 40 percent down-payment requirement on second homes to prevent speculation.

Considering the housing market trend and the liquidity situation, "the growth was expected," said Zhang Qi, an analyst at the China Index Academy, a major real estate research body. "But the central government's future credit policies will certainly have a very important impact on real estate prices."

Premier Wen Jiabao said on several occasions recently that China would "unswervingly" stick to its "appropriately relaxed monetary stance and proactive fiscal policy" in the second half to sustain economic recovery.

China's gross domestic product grew 7.9 percent in the second quarter, up from 6.1 percent in the first quarter. But the rate was still below a government target of 8 percent for the entire year and the 10 percent average rate enjoyed in recent years.

"The property boom may continue through this autumn as strong sales allow developers to recoup their investment more quickly," said Su Xuejing, an analyst at Changjiang Securities Co. "Capital flowing out of the stock market will also push up housing prices and foreign investors may enter the Chinese market again."

Source: Shanghai Daily
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