China's property market in 'big bubble'

The housing market in this country is in a "very big bubble" that may last until the central bank increases interest rates and Beijing introduces a real-estate tax, The Bloomberg News quoted StarRock Investment Management as saying Thursday.

"China's property market has a very big bubble, which may last for a while," Jiang Hui, investment director at StarRock Investment, said at a conference in Shanghai. "Only higher interest rates and the introduction of a property tax can bring down real-estate prices."

The benchmark Shanghai Composite Index has fallen 19 percent this year, after the government increased down- payment requirements on home sales and ordered banks to set aside more deposits as reserves to curb asset bubbles.

Even with the tightening measures, housing prices haven't slowed from record gains in 2009. Property prices in 70 major cities across China climbed 10.3 percent in July from a year earlier, said the National Bureau of Statistics.

However, Ba Shusong, deputy head of the financial department of the State Council's Development Research Center said that, although the property bubbles exist in some of the large cities, there is no evidence of a nationwide property bubble in China, according the The Bloomberg News report.

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, the report quoted RBC Capital Markets as saying. The inflation rate accelerated to 3.3 percent in July, and is widely to exceed 3.4 percent in August.

The government is still studying property tax and plans to introduce property tax reform, The Xinhua News Agency reported last week.

By People's Daily Online