60% jump in China property sales to fuel realty bubble

60% jump in China property sales to fuel realty bubble
The Financial Express, August 11, 2009, Page 18

Bloomberg

China's property sales surged 60% by value in the first seven months, adding to concern that record lending will create a real-estate bubble in the world's fastest-growing major economy. Sales accelerated after a 53% gain in the first half from a year earlier, the statistics bureau said in a statement on its website on Monday. Real estate investment rose 11.6%, up from 9.9% in the six months to June 30. Home prices in 70 major cities advanced 1% in July from a year earlier, the biggest increase in nine months, the National Development and Reform Commission said in a separate statement. Premier Wen Jiabao reiterated on Sunday that monetary policy will remain unchanged, after climbing asset prices triggered speculation that a tightening could be imminent.

“Policy makers may be getting a bit edgy about asset bubbles developing,” said David Cohen, an economist with Action Economics in Singapore. “They may use administrative measures to cool prices.” Property stocks, which have gained 142% this year to be the best performing group on the Shanghai Composite Index, fell 1.6% as of 2:12 pm local time on concern loan growth will slow. Poly Real Estate Group Co fell 2.7%. China Construction Bank Corp president Zhang Jianguo said last week that the nation's second-biggest bank will cut new lending by about 70% in the second half to check bad debts.

“There's concern that while the macro-economic policy will stay the course, the real-estate industry won't escape some policy fine-tuning,” said Zhang Chifei, a Nanjing-based real- estate analyst at Huatai Securities Co.

China's economic growth accelerated in the second quarter and the Shanghai Composite Index has climbed almost 80% this year, powered by $1.1 trillion of lending in the first six months. Home prices in the 70 cities began to rise in June after declining for the previous six months. Property sales by area climbed 37% in the first seven months from a year earlier, the statistics bureau said.

“The overall increase that we're seeing in property prices is still manageable, the government would be more concerned about the stock market,” said Sherman Chan, an economist at Moody's Economy.com in Sydney. “Higher confidence and more liquidity” are causing price gains, she added.

Central bank and finance ministry officials said on Friday that they will scrutinise gains in stock prices without capping new lending. The Financial Times reported the same day that the central bank had told the largest state-controlled lenders to slow growth in new loans, citing unidentified people familiar with the matter.

Property prices are being boosted by a lack of investment alternatives in China, Kenneth Tsang, Asia Pacific head of research at LaSalle Investment Management, said on August 6. In July, new home prices rose in 43 cities and fell in 26 from a year earlier, the NDRC said. The largest increase was a 6.4% gain in the eastern city of Ningbo. Month-on-month, 63 cities posted increases in new home prices, with three reporting declines.

--------------------------------------------------------------------------------

Goldman pegs China GDP at 9.4%

Goldman Sachs Group Inc raised its forecast for China's economic growth this year to 9.4%, citing “strong momentum” and the likelihood that the government will delay tightening policy. The previous estimate was for a gain of 8.3% from a year earlier, Hong Kong-based economist Michael Buchanan said in an e-mailed report on Monday. The economy may expand 11.9% next year, he said. “China is closer to a point at which it should be equally worried about tightening too late as it is about tightening too early,” the economist said. Policy makers won't move quickly because they remain “very cautious” against the backdrop of weakness in the global economy, he said.

China's GDP expanded 7.9% in the second quarter from a year earlier, rebounding from the weakest growth in almost a decade, as a 4 trillion yuan ($585 billion) stimulus package and record lending took effect.