The latest analysis from Credit Suisse shows that most major cities in China have seen property prices rise by between 26 and 96% in new home sales in the last 12 months.
Banks and credit ratings agencies are concerned about the effects of a property bubble and government officials are said to be considering withdrawing stimulus measures before the end of the year in an attempt to cool the market.
‘While it isn’t a major surprise to see such year-on-year jump, given last year’s property market downturn, it should be interesting to note that some cities such as Shenzhen and Hangzhou also managed to post a positive growth when benchmarked with the 2007 level,’ said Credit Suisse analyst Jinsong Du in the report.
They believe that a change to mortgage terms might even push up prices.
‘A potential change of mortgage interest rate for first-time buyers may induce home buyers to make an early entrance into home purchasing,’ the report also says.
There is no doubt that the Chinese property market has seen a remarkable turnaround since Beijing announced a series of measures in October 2008, including a reduction in mortgage rates for first-time home buyers and a reduction in taxes on property transactions.
Since then, property prices have recovered, while sales for both new and existing homes have soared.
Data released recently by the National Bureau of Statistics show that in the first nine months of 2009, the sales-price indexes of buildings in 70 medium to large sized mainland Chinese cities have increased by 2.8% from a year-earlier.
Total investment in real-estate development during the period jumped 17.7% to $367 billion, while the total floor space of residential buildings sold surged 46.4%.
Many analysts now expect the government to withdraw the stimulus measures but probably gradually to avoid volatility in prices.
‘We expect sales in November could remain warm, as buyers may speed up their home-buying decisions while favorable policies last,’ the report says.
While this rush of buying may be good for sellers, finance markets are not so keen.
China’s banking regulator plans to review debt levels at some real estate developers amid concern that borrowings are fueling excessive gains in property prices.
The China Banking Regulatory Commission wants to reduce leverage at developers that bought land at inflated prices and at large state-owned companies that have entered the property market.
There are concerns that some developers have borrowed too much, threatening to cause an increase in delinquent debts should property prices collapse.
‘Bubbles exist in some regions, mostly first-tier cities and some second-tier cities, and the bubble in high-end property market is more obvious,’ said Bai Hongwei, an analyst at China International Capital.
Rapid gains in property prices are ‘very likely’ to disrupt improvements in real estate investment and threaten the country’s overall economic recovery if the government takes measures to curb the bubble, according to Ba Shusong, a deputy head of financial research at the Development Research Centre which advises the State Council.
