China property sales leap 60% in first 7 months

Source : Business Times – 11 Aug 2009

Concern over asset bubbles brought on by record lending

China’s property sales surged 60 per cent in the first seven months amid concern that record lending will stoke asset bubbles in the world’s fastest-growing major economy.

The gain in the value of sales, announced by the statistics bureau on its website yesterday, compares with a 53 per cent increase in the first half from a year earlier. Real estate investment accelerated to 11.6 per cent growth from 9.9 per cent, the agency said.

Home prices in 70 major cities gained one per cent in July from a year earlier, the biggest increase in nine months, the National Development and Reform Commission (NDRC) said yesterday in a separate statement.

Premier Wen Jiabao reiterated on Sunday that monetary policy will remain unchanged, after climbing asset prices triggered speculation that a tightening could be imminent.

‘Policymakers may be getting a bit edgy about asset bubbles developing,’ said David Cohen, an economist with Action Economics in Singapore. ‘They may use administrative measures to cool prices.’

Improved property sales are part of a broader recovery. China’s economic growth accelerated in the second quarter and the Shanghai Composite Index of stocks has climbed almost 80 per cent this year, powered by US$1.1 trillion of lending in the first six months. Home prices in the 70 cities began to rise in June after declining for the previous six months.

Property sales by area climbed 37 per cent in the first seven months from a year earlier, the statistics bureau said.

‘The overall increase that we’re seeing in property prices is still manageable, the government would be more concerned about the stock market,’ said Sherman Chan, an economist at Moody’s Economy.com in Sydney. ‘Higher confidence and more liquidity’ are causing price gains, she added.

Central bank and finance ministry officials said on Aug 7 that they will scrutinise gains in stock prices without capping new lending. The Financial Times reported the same day that the central bank had told the largest state- controlled lenders to slow growth in new loans, citing unidentified sources.

China Construction Bank Corp president Zhang Jianguo said last week that the bank will cut new lending by about 70 per cent in the second half to avert a surge in bad debt.

Property prices are being boosted by a lack of investment alternatives in China, Kenneth Tsang, Asia-Pacific head of research at LaSalle Investment Management, said on Aug 6.

‘It’s property or the stock market,’ he said. ‘Some of the government officials lately are increasingly concerned about the situation in China and there may be a bubble.’

In July, new home prices rose in 43 cities and fell in 26 from a year earlier, the NDRC said. The largest increase was a 6.4 per cent gain in the eastern city of Ningbo. Month-on-month, 63 cities posted increases in new home prices, with three reporting declines.

Across the 70 cities, home prices climbed 0.9 per cent from June, the fifth straight monthly again.