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Chinese property market could still overheat despite cooling measures, warns IMF

Ashvin Ahuja, an economist with the IMF, points out that private house prices have been rising about 100% every five in 35 key cities in China. Price growth has been concentrated very much in larger or medium sized cities such as Beijing, Shanghai, Shenzhen, Tianjin and Hangzhou.

He said that while overall there is not a convincing sign that a bubble is forming, when you look at certain areas along the coast, and also some large cities inland, one could reasonably say that there is a bubble that’s inflating, particularly, in the mass market of Shanghai and Shenzhen.

He also pointed out that the cooling measures taken by the government take time to work. Increasing down payments for home owners has to filter down. Third mortgages are now virtually impossible to get.
But there are still people out there with lots of money who are using property as an investment vehicle and therefore willing to pay the extra for owning more than one property.

‘That’s been a key driver of housing prices over the past 10 years. And people have only experienced high growth, so it’s reasonable for them, without having experienced any down cycle, to think that the future will look bright. And when you expect high growth, people jump into the market,’ he explained.

‘The government has shown it’s worried and it has tried to clamp down on property price inflation. But I think the ultimate test is how the government can ensure a sustainable private housing market so that people can genuinely get housing services without having to suffer losses down the road,’ he added.