SHANGHAI - Shanghai and Beijing's luxury home prices may increase 15 percent each year to overtake Hong Kong in the next five to 10 years, said Joe Zhang, deputy head of China investment banking at UBS AG.
China's tightening measures won't stop prices from rising and may only "delay" the gains, he said. Monetary policies may also be eased over time to avoid a rise in unemployment, said Zhang.
"It doesn't matter what the government is doing, whether we have 100 new measures or 10,000 new measures," Hong Kong-based Zhang said on Nov 19. "In the long term, all these are noises and will disappear, and only one variable matters - money supply."
China, which last month raised interest rates for the first time in three years, suspended mortgages for third-home purchases and pledged to speed up trials of property taxes this year to restrain foreign capital and cool property prices.
The central bank also ordered lenders on Nov 19 to set aside larger reserves for the second time in two weeks, draining cash from the financial system to limit inflation.
China's M2, the broadest money supply measure, rose 19.3 percent in October from a year earlier, the most since May. The economy expanded 9.6 percent in the third quarter, three times the pace of growth in the United States.
Prices of luxury homes in the Chinese capital and the financial hub, or the top 5 percent to 10 percent of each market, will continue to climb as values of mid- and low-end real estate are also rising, Zhang said.
The mainland's home prices rose for a 17th month in October from a year earlier, gaining 8.6 percent, the government said.
Hong Kong announced more measures to curb speculation on Nov 19, after prices surged more than 50 percent since the start of last year. The city imposed additional stamp duties and increased deposits for home purchases, a day after the International Monetary Fund warned that asset inflation could derail the city's economy.
Residential real estate values in Hong Kong have jumped 52 percent since the beginning of 2009 and surpassed a 1997 peak, according to an index compiled by Centaline Property Agency Ltd.
The mainland is unlikely to introduce further property-specific measures as the government shifts its policy focus to controlling inflation, Citigroup Inc said in a report last week. More than 1 trillion yuan ($150 billion) would likely go into other areas if the government screens out property investment and speculation demand, according to Citigroup's forecast.
There are signs the government measures are starting to have an effect. The increase in October home prices was the slowest in 10 months, government data showed. Sales volume dropped 11 percent in October from the previous month, while the value of transactions fell 7.7 percent.
"Maybe you can't see the impact in a short period like one or two years," Zhang said. "But over a five- or 10-year period, asset prices will be a function of money supply."