WORLD PROPERTY CHANNEL ®

George Soros

(BEIJING, CHINA) -- Is China's runaway real estate engine overheating and in danger of shutting down?

International watchers monitoring the country's economy think so, citing surging home prices that have prompted the government to crack down on speculation and tighten lending, reports Bloomberg.

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Billionaire investor George Soros last week told a global gathering of financial chiefs in Davos Switzerland, "Right now, the Chinese (real estate) market is overheating and they have to slow it down,"  according to Bloomberg Television which covered the meeting.

Soros added, "It remains to be seen how successful they are."

Andy Xie

Former Morgan Stanley chief Asian economist Andy Xie and Kynikos Associates Ltd. founder James Chanos have previously warned that China has a real-estate bubble that may burst.

On its web site, the China Banking Regulatory Commission urged banks to "strictly" follow established real estate lending policies that would "reasonably control" lending growth.

Premier Wen Jiabao is trying to cool the market to prevent price bubbles and keep housing affordable, Bloomberg reports.

James Chanos

Property borrowing accounts for about 20 percent of new lending in China, according to Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission.

In 2009, Chinese banks loaned a record 9.59 trillion yuan.

"Local governments were the biggest beneficiaries of China's property boom in 2009," said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. "They may find that their financing is squeezed this year."

Low interest rates, record lending and surging housing prices have encouraged developers to buy land and build up reserves of property, Bloomberg reports.

Wen Jiabao, China Premier

"Land assets have gradually become an important source of capital income and financing" for the government, Xu Shaoshi, the Minister of Land and Resources said on the ministry's web site this week.

"China has sold 5.3 trillion yuan of land in total between 1999 and 2008."

China's government netted 1.6 trillion yuan ($234 billion USD) from land sales In 2009, or 40 percent of the cost of the nation's two-year stimulus package.

The figures, released this week by the Ministry of Land and Resources, showed state land sales rising to a record, helping to fund the 4 trillion-yuan plan.

The risk for this year may be that real-estate sales and prices drop because of government efforts to cool the market, cutting into one of the main sources of revenue for the nation's 31 provinces, Bloomberg reports.

Xu Shaoshi

China sold or allocated 319,000 hectares (788,266 acres) of land in 2009, 44 percent more than a year earlier and the equivalent of three times Hong Kong's land mass.

Sales revenue climbed 63 percent, according to the ministry's data. Land sold for "real-estate use" accounted for 84 percent of sales by value, with property used for infrastructure and industrial purposes accounting for the rest.

The 1.6 trillion yuan of income from land sales last year, the equivalent of about 5 percent of China's gross domestic product, came after the land ministry boosted supply and simplified procedures for buyers to bolster the economy during the financial crisis, Xu said.

"There is a conflict of objectives between local governments and the central government," said Lee Wee Liat, a property analyst at Nomura Holdings Inc. in Hong Kong. "The central government is trying to control increases in property prices, while local governments are the main beneficiaries of the increases."

The central bank unexpectedly asked banks to set aside more money as reserves on Jan. 12 and may raise the benchmark lending rate next quarter, according to a Bloomberg survey of economists on Jan. 21.

Property prices in 70 major cities climbed 7.8 percent in December, the fastest pace in 18 months. Sales jumped 75.5 percent in 2009 to 4.4 trillion yuan, led by Zhejiang and Shanghai, according to government data.

In contrast, second-hand home sales in Beijing fell almost 70 percent in January from the previous month and Shanghai's new home sales halved as the government tightened policies, the official Shanghai Securities News reported Feb. 2.

For all of China, the volume of property sales may drop 10 percent in 2010, BNP Paribas said in a Feb 2 report. That compared with a previous forecast for growth of as much as 5 percent.

 

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