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Monday, March 28, 2005

NEWS: Real Estate Bubble in China

BEIJING - China's real estate market seemed to have got into an unrelenting price spiral in 2004 as the central government issued a series of policies to cool down the sector but housing prices continued to rise throughout the year. This surprising double-digit year-on-year growth may have delighted developers, but made experts fear a market bubble.
According to the National Bureau of Statistics, by the end of November, China's housing price rose 12.5% year-on-year, up 0.8 percentage points over the 11.7% growth in October. The growth rate is even higher in 35 major cities. So is the country's real estate market enjoying healthy development or is this just an artificial bubble? There is still no definite answer.

From December 1, 2002, the developers' own capital was stipulated to stand at 30% of their total investment, 10 percentage points higher than before. The threshold was further increased to 35% last year.

Another macro-policy was issued late October, as the central bank raised for the first time in nine years its benchmark interest rate by 27 basis points, one-year lending rate from 5.31% to 5.58%, and the one-year deposit rate from 1.98% to 2.25%. The higher lending interest rate surely puts a heavier burden on developers' financing costs and the majority of the consumers who acquire their property via banking loans.

However, the impact of these measures, aiming to cool down the overheated property market, is not as so palpable as the experts and insiders had predicted, with prices continuing to rise and market demand remaining robust. The National Bureau of Statistics recently indicated that average property prices in China's main cities rose 12.5% year-on-year in 2004. Prices for residential and commercial property averaged 2,759 yuan (US$333.10) per square meter, with the average price of residential housing rising 11.6% to 2,580 yuan per square meter between January and November.

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