Despite measures by the Chinese government to ward off a property bubble, many believe an interest hike is unavoidable as real estate prices grew by an unprecedented rate in March. Construction can’t keep pace with demand, and inventory shortfalls are pushing prices higher, spurring increases in excess of 50% in some Chinese cities. See the following article from Property Wire for more on this.
Property prices in China rose at a record pace in March, indicating government efforts to stem gains aren’t working and more drastic measures may be needed amid concern of a bubble in the nation’s housing market.
Residential and commercial real estate prices in 70 cities soared 11.7% from a year earlier, according to figures from the National Bureau of Statistics.
Haikou, the capital city on the southern island of Hainan, had the biggest gain, with a 53.9% jump in overall property prices. Sanya, also on Hainan and a host of the Miss World beauty pageant, followed with a 52.1% increase. Both cities also led gains in prices of newly built homes with prices in Haikou up by 65% and Sanya by 58%, the report showed.
Property prices on Hainan, located in the South China Sea, have soared after the Chinese government issued a plan to turn the island into an international tourism destination.
China has raised mortgage rates and re-imposed a sales tax on homes in the first two months of the year to reduce the risk of asset bubbles. The government announced in March developers will have to pay a higher deposit for land purchases and banned banks from lending to builders found to be hoarding land or holding back home sales in anticipation of higher prices.
‘The data is bad news. This means that monthly price gains are accelerating again after slowing to a four month low of 0.9% in February. Expect further policies to slow the real estate market,’ said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.
Interest rates will need to rise, according to Brian Jackson, a Hong Kong based emerging markets strategist with the Royal Bank of Canada. ‘To convince homebuyers that it is fully committed to curbing overheating and reducing bubble risks, Beijing will need to use all of its policy tools, and that most obviously includes higher interest rates,’ he said.
According to Lee Wee Liat, an analyst at Nomura Holdings the imposition of property taxes could push some potential buyers on the sidelines but more measures will be needed.
A trial is expected to get underway in bubble cities such as Beijing, Shanghai, Chongqing and Shenzhen. But the situation is pretty serious according to hedge fund manager James Chanos who claims China is ‘on a treadmill to hell’. Last week he declared; ‘They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing’.
And a shortage of supply could keep prices on their upward trend, according to Lee. ‘Last year, some developers were skeptical about the price increases and cut back on construction starts until the fourth quarter, so there’s no supply in the market. Whatever the developers are putting out, people are grabbing,’ he explained.
Indeed Chinese developers have announced increases in first quarter sales. Evergrande Real Estate Group said sales jumped 175% in the first three months of this year and China Overseas Land & Investment reported a 48.3% rise.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.