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Chinas Property Market Continues To Overheat, Despite Measures

Blog by Nick Swinburne | December 21st, 2010

Chinese real estate prices increased 0.3% in November and are now 7.7% more than they were a year ago, according to the latest stats from the National Bureau of Statistics. This indicates that prices have risen consistently for three months in China’s 70 largest and medium sized cities, although rate of increase is slowing in response to government measures being introduced to cool down the real estate market.

November price increases come on the heels of a 0.2% rise in October and a 0.5% gain in September. Similarly, prices have gone up 7.7% in November from the same month last year, which is down from October’s 8.6% increase.

These figures also reflect the fact that transactions themselves are up. Sales volume increased 14.5% from a year earlier and transaction values shot up 18.6%.

These numbers indicate that prices in Beijing increased 0.2%, Shanghai prices went up 0.1% and in Yueyang, a medium sized city in central China, and prices rose 2%. Only six out of the 70 major cities monitored by the government reported a decrease in property prices.

The central bank hiked interest rates in October for the first time in three years amidst fears over rising inflation and increases in asset prices. Clearly though, it will take more time for the effect to take full impact.

These stats indicate that China’s property investment went up 36.7% to 462.8 billion yuan ($69 billion) in November from a year prior, and increased 36.5% for the first 11 months of the year to 4.27 trillion yuan.

While there has been some slowdown in terms of price growth, since the peak in April when property values climbed 12.8%, the slowdown is small, and it is commonly felt among analysts that more cooling measures will be called for in 2011. There remains the possibility of further interest rate increases and a property tax to reduce risk of asset bubbles and a sudden, sharp fall in price.

According to a recent working paper the International Monetary Fund said that existing measures ‘at best only treat the symptoms of high residential real estate inflation and not the underlying structural causes’.

A recent report from Moody’s Investors Service states their belief that the property market is likely to continue to be stable and a moderate downward price correction can be expected in 2011 as a result of government action.