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Central bank warns on real estate
(AP)
Updated: 2005-08-16 14:08

China faces a potential property "bubble" whose bursting could leave banks with huge losses, the central bank said in a report ¡ª the government's frankest assessment so far of the risks from inflated real estate prices, the Associated Press reported.

Average real estate prices in China rose by 14.4 percent in 2004 over the previous year and by 12.5 percent in the first quarter of 2005.


A construction site in Liaocheng City, East China's Shandong Province August 16, 2005. [newsphoto]
 

Prices in cities like Shanghai have risen still faster, although they have moderated in recent months following government moves to cool the property boom.

"Property price inflation can easily result in prices soaring out of line with real values and thus cause a bubble," said the report, posted late Monday on the Web site of the People's Bank of China.

"Once the bubble bursts, it can cause a contraction in the real estate sector and significant losses for banks," the report said.

Housing loans, including those to property developers, stood at 2.6 trillion yuan ($310 billion) at the end of 2004, accounting for about 15 percent of all yuan-denominated loans, said the report.

It noted that some property developers were obtaining loans illegally by having their employees pose as home buyers.

In some cases the loans were repaid; in others, the borrowers defaulted on their debts after failing to resell the apartments.

A government-orchestrated tightening of credit has also generated more defaults by property developers relying heavily on bank loans for their projects, it said.

This spring, the government began acting to curb speculative real estate investment that it says has pushed prices unsustainably high. Local governments like Shanghai boosted taxes on real estate transactions and ordered banks to limit credit for property deals, among other measures.



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