China House Prices Rise Fastest In Two Years

Source : The Business Times, November 15, 2007

Prices in 70 major cities surge 9.5% in Oct; property buys up as inflation soars

(HONG KONG) China's house prices rose in October at the fastest pace since 2005 as inflation outpaced returns on bank deposits, encouraging households to invest in property.

Fever pitch: The govt's recent steps to cool real estate speculation included lifting downpayments to 40% from 30% for housing loans. Housing sold to buyers hoping to sell at higher prices accounts for a big part of total sales

Prices in 70 major cities jumped 9.5 per cent from a year earlier after gaining 8.9 per cent in September, the National Development and Reform Commission said yesterday on its web site. That was the biggest gain since records began in August 2005. Values climbed 1.6 per cent from September.

The acceleration is fuelled by the cash flood from China's trade surplus, a record US$27 billion in October, prompting concerns about a possible property bubble.

China in September raised interest rates on some mortgages and increased minimum down payments to curb real estate speculation.

'Price gains are understandable because the strong demand is still out there,' said Liu Xihui, a Shenzhen-based analyst with Ping An Securities Co. 'The reason prices are still accelerating is probably because September's tightening measures haven't yet had an effect.'

Prices soared 19.5 per cent in October from a year earlier in Shenzhen and 15.1 per cent in Beijing, the commission said. New commercial housing valuations rose 10.6 per cent from a year earlier and second-hand prices increased by 8.7 per cent, it said.

Measures introduced by China on Sept 27 to damp property speculation included raising downpayments to 40 per cent from 30 per cent for housing loans, and to half a property's value for commercial real estate.

The steps will slow property price increases in the balance of the year by crimping buying for investment purposes, said Ping An Securities' Liu. Housing sold to buyers hoping to sell at anticipated higher prices accounts for a 'big part' of total sales, he said.

September's measures came after new taxes, higher mortgage rates and downpayment ratios imposed since 2005 failed to cool the market. Investment in real estate development jumped 30.3 per cent in the first nine months of 2007, 6 percentage points faster than a year earlier.

China's consumer prices rose 6.5 per cent last month from a year earlier, matching the decade high in August, as food costs surged. The benchmark one-year deposit rate is 3.87 per cent.

China has this year raised interest rates five times and ordered lenders on nine occasions to set aside larger reserves to curb inflation and contain bubbles in the property and stock markets. -- Bloomberg