Sales in the Chinese residential real estate market are up an impressive 69.9 percent in value for the first eight months of 2009. However, this momentum may turn if the government decides to take aggressive action to prevent an asset bubble, including eliminating incentives for real estate investment. For more on this, see the following article from Property Wire.
Residential property prices in China rose again in July but there are concerns that real estate funds are using easy to get bank loans to try to make a quick profit.
The figures from the National Bureau of Statistics showed that property prices in 70 big and mid-size cities in China rose 2% last month from a year earlier, and 0.9% from July.
Year-on-year growth in real estate investment also gained pace, increasing 14.7% from January to August.
Shenzhen and Jinhua, the main cities in the eastern coastal provinces, led the gains.
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Most analysts believe the recovery is due to the series of measures introduced by the Chinese government since last October, including tax breaks, to support the real estate sector, which accounts for more than 20% of urban fixed investments and is a key driver of China’s economic recovery.
However, some economists are concerned that funds have flooded into stock and real estate markets, instead of helping the real economy, as companies seek to use stimulus bank loans to make quick profits.
Analysts also warned that property prices could face a major correction if the government has to make aggressive moves to prevent asset bubble build-ups.
Surprisingly new bank loans in July were already sharply down from record highs seen in the first half of the year.
But at the same time the figures show that property sales in value terms rose 69.9% in the first eight months of the year, up from 60.4% in the first six months of 2009, indicating the slowdown in new lending has not hurt the sector.
‘The continued rise in asset prices reflects the recovery in investor confidence,’ said Sherman Chan, an economist at Moody’s.
But he warned that policy makers need to keep a close eye on asset prices in the near term and act fast in preventing bubbles which could derail the economy.
Investment in property development also grew, up 14.7% and no slowdown is predicted. ‘Property investment will grow by 20% this year and it will continue to be a driving force for China’s growth this and next year,’ said Xing Ziqiang, an economist at China International Capital in Beijing.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.