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Fears of hijacking by real estate sector
By Li Baojie and Chen Fang |
February 12, 2010, Friday
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CHINESE authorities have moved to curb soaring property prices, amid concerns that speculation and explosive growth in bank lending have caused an asset-price bubble.
In one of the latest moves, several major banks have toughened lending rules for property developers and reduced 2010 loan quotas.
The Industrial and Commercial Bank of China, the nation's largest lender, said on Monday it will stop lending to property developers without adequate project capital or licenses, and even call back loans from those who hoard land and homes.
The China Construction Bank has set its 2010 new loan quota at 750 billion yuan (US$109.8 billion), down from 950 billion yuan in 2009.
Many banks have also cut mortgage rate discounts, after the People's Bank of China and the China Banking Regulatory Commission ordered steady lending growth to guard against asset bubbles and credit risks.
The red-hot property market sparked huge growth in land sales last year as property developers rushed to grab land on expectations of further rises in home prices. Yang Hongxu, an analyst from E-House China, a real estate services company, said when the economy is in a slow recovery, many companies, especially those state-owned enterprises with abundant funds, are inclined to invest in real estate for a quick profit and an inflation hedge.
China's government earned 1.59 trillion yuan from land sales last year, up 63.4 percent from a year earlier, according to the Ministry of Land and Resources. Land sales are a major source of revenue for local governments, especially when other sources dropped off during the global economic downturn.
The eastern city of Hangzhou, Zhejiang Province, netted 105.4 billion yuan in land sales taxes in 2009, the most of any city nationwide, according to the China Index Research Institute. Shanghai came next with 104.3 billion yuan while Beijing was third with 92.8 billion yuan.
Experts said local governments should speed up economic restructuring and reduce reliance on land sales for fiscal revenue, as the dependency makes local authorities reluctant to rein in soaring prices. The real estate sector in China contributes about 20 percent of fixed asset investment and about 10 percent of gross domestic product.
This has sparked controversy: has the sector "kidnapped" China's economy, with the government unwilling to take tough measures to curb home prices out of fear it will pull down GDP growth? Analysts said high home prices have actually dented private consumption, as a flat in a big cities could cost the savings of up to three generations.
"As the property market is recovering rapidly this year, housing prices in some cities are rising too fast. This deserves the great attention of the central government," Premier Wen Jiabao told Xinhua on December 27.
Housing prices in China's 70 large and medium-sized cities rose 7.8 percent in December from a year earlier, the fastest pace in 18 months, official figures showed. The picture in some big cities is especially alarming: new home prices in the southern boomtown of Shenzhen, Guangdong Province, doubled to 21,660 yuan per square meter on average last October from February, when prices began to climb.
The central government is worried about home price rises in cities when an increasing number of middle-income families are unable to afford housing, said Wang Tao, head of China Economic Research at UBS Securities.
But the government is cautious about taking measures on fears that some of them, if too harsh, could hurt the construction industry - one of the main drivers of China's economic growth at a time external demand for Chinese exports is still weak, she said.
(The authors are Xinhua writers.)
In one of the latest moves, several major banks have toughened lending rules for property developers and reduced 2010 loan quotas.
The Industrial and Commercial Bank of China, the nation's largest lender, said on Monday it will stop lending to property developers without adequate project capital or licenses, and even call back loans from those who hoard land and homes.
The China Construction Bank has set its 2010 new loan quota at 750 billion yuan (US$109.8 billion), down from 950 billion yuan in 2009.
Many banks have also cut mortgage rate discounts, after the People's Bank of China and the China Banking Regulatory Commission ordered steady lending growth to guard against asset bubbles and credit risks.
The red-hot property market sparked huge growth in land sales last year as property developers rushed to grab land on expectations of further rises in home prices. Yang Hongxu, an analyst from E-House China, a real estate services company, said when the economy is in a slow recovery, many companies, especially those state-owned enterprises with abundant funds, are inclined to invest in real estate for a quick profit and an inflation hedge.
China's government earned 1.59 trillion yuan from land sales last year, up 63.4 percent from a year earlier, according to the Ministry of Land and Resources. Land sales are a major source of revenue for local governments, especially when other sources dropped off during the global economic downturn.
The eastern city of Hangzhou, Zhejiang Province, netted 105.4 billion yuan in land sales taxes in 2009, the most of any city nationwide, according to the China Index Research Institute. Shanghai came next with 104.3 billion yuan while Beijing was third with 92.8 billion yuan.
Experts said local governments should speed up economic restructuring and reduce reliance on land sales for fiscal revenue, as the dependency makes local authorities reluctant to rein in soaring prices. The real estate sector in China contributes about 20 percent of fixed asset investment and about 10 percent of gross domestic product.
This has sparked controversy: has the sector "kidnapped" China's economy, with the government unwilling to take tough measures to curb home prices out of fear it will pull down GDP growth? Analysts said high home prices have actually dented private consumption, as a flat in a big cities could cost the savings of up to three generations.
"As the property market is recovering rapidly this year, housing prices in some cities are rising too fast. This deserves the great attention of the central government," Premier Wen Jiabao told Xinhua on December 27.
Housing prices in China's 70 large and medium-sized cities rose 7.8 percent in December from a year earlier, the fastest pace in 18 months, official figures showed. The picture in some big cities is especially alarming: new home prices in the southern boomtown of Shenzhen, Guangdong Province, doubled to 21,660 yuan per square meter on average last October from February, when prices began to climb.
The central government is worried about home price rises in cities when an increasing number of middle-income families are unable to afford housing, said Wang Tao, head of China Economic Research at UBS Securities.
But the government is cautious about taking measures on fears that some of them, if too harsh, could hurt the construction industry - one of the main drivers of China's economic growth at a time external demand for Chinese exports is still weak, she said.
(The authors are Xinhua writers.)
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