Top official warns of housing bubble amid rising prices

A dozen Chinese cities have introduced restrictions on home purchasing and ownership as top policymakers continue to stress the need to fend off the potential risk of a housing bubble.

“We have a large amount of financial assets at the moment, which should be led to the real economy … has been pouring into the real estate

sector, which, if not properly managed, could form a bubble,” Vice Premier Zhang Gaoli said at the China Development Forum in Beijing on Sunday.

Such a risk has to be contained, Zhang said, adding preventing a property bubble should be put at a more important position in the country’s overall efforts to fend off financial risks.

At the same forum, He Lifeng, chairman of the National Development and Reform Commission, China’s top economic policy planning agency, said rising housing prices have been negatively impacting the real economy.

“The soaring home price of first- and second- tier cities has increased the cost of real economy development, leading to an imbalance,” He said Sunday, stressing the importance of fighting speculative housing purchases and stopping “an excessive flow of credit fund into real estate.”

The official statements might suggest alarming signs of a potential housing bubble is in the fast making, Chinese experts noted.

“There is a bubble in the Chinese housing market that is undisputable, but the problem might be the bubble has grown out of expectations and led to some unstable developments in the property market,” Yan Yuejin, from the Shanghai- based E- house China R& D Institute, told the Global Times on Sunday.

There are a lot of speculative buyers in the Chinese housing market, who uses bank loans and other financial leverage to purchase property and then sell for profits, driving up leverage in the market and creating the bubble, added Hui Jianqiang, research director with real estate information provider Beijing Zhongfangyanxie Technology Service.

And the government is trying to crack down on such speculative forces through new restrictions on real estate transactions, according to Hui.

Smaller city rush

A dozen Chinese cities have tightened housing purchasing polices since the issuance of the government work report, according to data from the E- house China R& D Institute.

Beijing and Guangzhou on Friday became the latest Chinese cities to issue new restrictions on home purchases. In Beijing, unmarried buyers are limited to buying one apartment and families to two, while the down payment for a second home was increased to 60 percent of the value from 50 percent earlier. Guangzhou made similar adjustments.

Last week, Nanjing, capital of East China’s Jiangsu Province, Qingdao in East China’s Shandong Province and Ganzhou in East China’s Jiangxi Province, announced new measures to rein in skyrocketing housing prices, all restricting the number of houses residents are allowed to buy and increasing down payment requirements.

Other cities that have tightened housing purchasing polices include smaller cities such as Zhuozhou in North China’s Hebei Province and Sanya in South China’s Hainan Province.

Though housing prices in first- and second- tier cities have cooled in February, prices are heating up in smaller cities, official data showed.

New residential home prices in firsttier cities such as Beijing and Shanghai rose 0.1 percent on average in February, while second- tier and third- tier cities registered slightly higher price gains of 0.3 percent and 0.4 percent, respectively, according to data from the National Bureau of Statistics on Saturday.

Yan attributed price surges in smaller cities to a “demand overspill effect” after tightened restrictions were introduced in first- and second- tier cities and tightened restrictions on home purchases could stop the trend in the short term.

But in the long- run, sufficient land supply and a long- term mechanism is necessary to ensure stability in the housing market, experts said, adding a crucial part of the long- term mechanism should be the implementation of a property tax.

Property tax, which is still under consideration by top policymakers, could add cost to house purchases and discourage speculative forces, Hui said.