Soaring property prices in China prompt call for banks to be cautious about lending

The price of new residential property in 36 cities in China has increased by 6.3% in the last year, new figures show.

As a result bank lending has tripled in the last six months because of increased demand for property, according to the National Development and Reform Commission. In June alone prices increased by 1.1%, the economic planning agency said.

'China's property market is recovering and prices should continue to rise in the third quarter,' said Zhou Hu, an analyst with Bohai Securities.

Data from the National Bureau of Statistics back this up. Nationwide property sales in June rose 32% by floor space and 53% by value from a year earlier, its latest statement shows. And investments in property development in the first half of the year have increased 9.9%, the agency said.

The country's biggest developers are also reporting positive figures. Vanke, China's biggest developer by market value, said that property sales in the first half of 2009 rose 28% from a year earlier to 30.8 billion yuan. Poly Real Estate said its sales rose an astonishing 168% to 21.1 billion yuan in the same period.

But now everyone is shouting about the recovery and there are concerns that it could start growing too quickly. The China Banking Regulatory Commission has warned against unhealthy growth in the property market. It ordered lenders to obey mortgage rules that require down payments of no less than 40% of the price amid concerns about banks boosting their real estate loans.

Developer KWG Property Holding said it expects China property prices to rise more slowly in the second half of 2009 after a sharp rebound in the first half, as Beijing moves to stabilise the market.

Chinese developers are hungry for land to meet strong domestic demand and eager to raise capital to fund purchases of land and for construction projects to meet soaring demand fuelled by Beijing's economic stimulus measures to boost the property sector. But now they are being warned not to move forward too fast.