Chinese property prices 'out of control'
House prices surge 20 per cent in Shenzhen and Guangzhou sparking fears of a bubble
An old residential section is seen next to a construction site of a new residential compound on a hazy day in Wuhan, Hubei province, in March of this year. China’s home prices rose the most in nearly three years in September, led by a surge in big cities, adding to the threat of a property bubble that is set to test government policy makers ahead of a key economic reform meeting due next month. Photograph: Reuters
Property prices are on the rise in China, heightening concerns a bubble is forming.
In September, home prices in China’s four major cities jumped the most since January 2011, as the government refrains from introducing more property curbs that would hinder economic growth. New home prices rose 20 per cent in the southern business hubs of Shenzhen and Guangzhou, 17 per cent in Shanghai and 16 per cent in Beijing from a year earlier as prices rose in 69 of the 70 cities the government tracks. Property stocks fell in Shanghai on speculation Premier Li Keqiang will be forced to impose stricter policies to rein in prices and limit risks to the economy. Li has held off tightened restrictions on property this year as his government strives to meet a 7.5 per cent annual economic growth target.
“Home prices, especially in big cities, are a bit out of control,” said Liu Li-Gang, a Hong Kong-based economist at Australia and New Zealand Banking Group. “China’s facing an increasing risk of a property bubble.”
A gauge tracking property stocks on the Shanghai Composite Index fell 1.7 percent at the midday break, compared with a 0.7 per cent drop in the benchmark. Economic Growth Chinese policy makers may be wary of clamping down on property just as increased construction is boosting the odds of the nation reaching a goal this year of a 7.5 per cent economic expansion. While growth picked up to 7.8 per cent in the third quarter, reversing a two-quarter slowdown, JPMorgan Chase and Co. economist Zhu Haibin said after an October 18th report on gross domestic product that the recovery momentum was “not likely to last long.”
While China is facing increasing pressure of tightening the property market, “we won’t see a drastic set of curbing moves,” Xu Gao, Beijing-based chief economist at Everbright Securities said. “Property is just such an important sector for China. If home prices fall, the economy will certainly slump. The government is trying to find a balance.”
Property investment and related industries account for one- third of the economy, according to Xu. Premier Li has come up with no additional measures to rein in property prices since his predecessor Wen Jiabao stepped up a three-year campaign in March to cool the housing market, ordering the central bank to raise down-payment requirements for second mortgages in cities with excessive cost gains. Some Chinese cities are facing increasing pressure to meet annual home-price targets they set earlier this year and to cap gains at the growth rate of local disposable incomes.