Chinese house prices up on accelerating investment and sales

09-10-2009 13:12

House prices in the 70 largest Chinese cities showed the strongest rise in almost one year due to increasing confidence and record lending. China’s house prices inflated by 2% in August from the corresponding period of the previous year, twice as high as the increase in the previous month, reported the National Bureau of Statistics of China this Thursday. Investment in real estate and sales rose strongly in August in comparison with July, according to the National Bureau of Statistics.

Chinese house prices

The rebound in house prices was mainly caused by the gains in Jinhua and Shenzhen, while a surge in sales and investment drives the building of a foundation for the Chinese recovery. Furthermore, rising prices could bring back concerns that speculative manias regarding assets could increase as a result of the $1.1 trillion lending during the initial months of 2009.
Sherman Chan, an economist at Moody’s Economy.com in Sydney, commented: “Rising investor confidence is proved by the continued increase in asset prices. “Policy makers should definitely monitor asset prices on the short term and react swiftly, in order to prevent speculative manias that would frustrate the economic development.”

Accelerating property investment

The National Bureau of Statistics reported today that investment in real estate development gained 14.7% in August, while it increased by 11.6% in July.
Xing Ziqiang, an economist at China International Capital Corporation, headquartered in Beijing, commented: “Real estate investment will climb by 20% in 2009, while it will remain the engine of economic expansion in 2009 and 2010.”
Real estate investment could grow by approximately 30% in 2010, according to Fan Gang, adviser to China's central bank.
In the three months through June the Chinese economy rose strongly after the weakest growth in almost ten years. The acceleration in the second quarter was boosted by the administration’s 4 trillion Yuan stimulus package and by the credit boom.
Economic figures concerning August will be published Friday.

House prices in the city of Shenzhen showed a rise of 6.9% in August from July, while the city of Jinhua posted a 6.5% gain. On a yearly basis, 15 of the 70 biggest cities showed decreases, while on a monthly basis none of the 70 cities posted a decline.

Equity bubble

Concerns about a speculative mania in equities decreased as the SSE Composite Index plunged. The benchmark dropped 0.9% at the end of the trading session, continuing its decline to 16% in comparison to last year’s record high in August. The index for the year remains at 1.6 times that of the previous year.
Chan believes that speculative manias regarding property will mainly appear in individual cities instead of across the country as a whole. He continued by saying: “The western and central regions are likely to demonstrate the strongest gain in investment, considering the present policy direction by the administration that targets on promoting a balanced development. Nevertheless, the recent reversal indicates that the eastern region, which yet is saturated and also posted a strong rise, probably is boosted by a revival in speculative investment.”
The Chinese GDP could climb by 9.5% in the next year, while it went up by 8.3% this year, which is the weakest increase in almost a decade, demonstrated by a survey among 22 economists.