Increased interest rates needed to burst Chinese property bubble, it is claimed

Current tightening measures including increased deposits are not working, a conference in Shanghai was told. ‘China’s property market has a very big bubble, which may last for a while. Only higher interest rates and the introduction of a property tax can bring down real-estate prices,’ said Jiang Hui, director of StarRock Investment Mangement.
 
The latest figure shows that property prices in 70 major cities across China have increased 10.3% in the last 12 months. China, which hasn’t raised interest rates since December 2007, may start increasing borrowing costs from the fourth quarter because of accelerating inflation, large wage increases and loose liquidity conditions, some experts believe.
 
The government is still studying property tax and plans to introduce property tax reform, according to the Xinhua News Agency.
 
It means that real estate investors should seek property companies that can adapt to the government’s policies. They might also want to look at properties in second and third tier cities where the market is healthier, said analyst Tony Tsang.
 
‘We expect the current government policy environment to continue for a longer period of time. Recent reports by local media on property market tightening reaffirmed our view that policy relaxation is unlikely without more meaningful price decreases,’ he said in a note.
 
The China Banking Regulatory Commission will strictly enforce property policies and work to curb real-estate speculation, the Shanghai Securities News said, citing Ye Yangfei, deputy head of the regulator’s statistics department.
 
Vice Premier Li Keqiang has urged local officials to further consolidate the results of the government’s curbs on speculation and to increase housing supply.
 
China Vanke, the largest listed Chinese developer by market value, made more than 10 billion yuan in apartment sales last month.
 
According to analysts at BNP Paribas property prices could start falling this month. ‘We expect a housing price correction to take place from September onwards, ‘ said Chen Xingdong.
 
Lending curbs and an increased supply of housing will force property developers to cut their prices to boost sales, he believes.