Chinese Property Prices Rise

Chinese authorities have been on the alert to the inflation of a property bubble for some time and have tried to control it by increasing interest rates and insisting that banks improve their reserves, choking off the money supply. Whilst these moves had an effect in containing the bubble, they also supressed the economy (again, this coincided with a general downturn in global demand) and China had to ease the measures to promote growth in the wider economy.

Data released for house prices indicate that they rose again in February. Prices for new homes rose in 66 of China’s biggest cities ranging from a 3.4% hike in Shanghai to 5.9% in Beijing and 8.1% in Guangzhou in the year to February. Housing construction is a key driver of economic growth in China, so the authorities face a difficult task in preventing a housing bubble whilst ensuring that momentum carries forward in the construction industry.

One measure that Chinese authorities intend to employ is a 20% tax on capital gains in the housing market. Other measures will require buyers to make higher downpayments (but this will make housing purchases unattainable to poorer Chinese, of course) and higher interest rates will be levied for second-time buyers purchasing properties in cities where prices are increasing too quickly.

The measures that China is currently employing should cause the rate of price inflation to be curbed, but they are thought unlikely to cause any significant falls in the house price. China has left its growth target for 2013 unchanged at 7.5% - whilst most developed nations will be happy to see any growth at all, this level is marginally below last year’s figure of 7.8% which was the weakest growth figure that China had posted for 13 years.