China's March property prices jump a record 11.7%

Updated: 2010-04-14 13:30
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China's property prices rose at a record pace in March, indicating more drastic measures may be needed amid concern of a bubble in the nation's housing market.

Residential and commercial real-estate prices in 70 cities climbed 11.7 percent from a year earlier, the National Bureau of Statistics said on its website. The data goes back to 2005.

China has raised mortgage rates and re-imposed a sales tax on homes in the first two months of the year to reduce the risk of asset bubbles. The government announced in March developers will have to pay a higher deposit for land purchases and banned banks from lending to builders found to be hoarding land or holding back home sales in anticipation of higher prices.

"The property tax may come, and that would push some potential buyers on the sideline," Lee Wee Liat, a Hong Kong- based analyst at Nomura Holdings Inc, said before today's announcement. "If that's not effective, they will impose some more measures."

China has passed a plan to impose a property tax on home purchases and may start a trial in Beijing, Shanghai, Chongqing and Shenzhen, reported April 8, without saying where it got the information. On the same day, the Shanghai Municipal Housing Support and Building Administration Bureau said any study of a property tax in the city is "entirely normal."

Haikou leads gains

Haikou, a city on the southern island of Hainan, had the biggest price gain, with a 53.9 percent jump, the statistics bureau data showed. Sanya, also in Hainan, followed with a 52.1 percent increase.

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The property market in the world's third-biggest economy is in a bubble that may burst by as early as this year, hedge fund manager James Chanos said in an interview last week.

China is "on a treadmill to hell," according to Chanos, who said in January the nation is Dubai times a thousand. "They can't afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing."

Home prices in China may continue to rise between now and September due to a shortage of supply, Nomura's Lee said.

"Last year, some developers were skeptical about the price increases and cut back on construction starts until the fourth quarter, so there's no supply in the market," he said. "Whatever the developers are putting out, people are grabbing."

While home prices may cool in the fourth quarter, values may still rise 15 percent for the full year, he said.

Sales jump

Chinese developers have announced increases in first-quarter sales. Evergrande Real Estate Group Ltd said April 2 sales jumped 175 percent in the first three months of this year to 8.53 billion yuan ($1.25 billion). China Overseas Land & Investment Ltd, a Hong Kong-traded builder controlled by the Chinese construction ministry, said on April 8 sales rose 48.3 percent to HK$13.7 billion ($1.77 billion).

To damp speculation, the government in January re-imposed a tax on homes sold within five years of their purchase, after having cut the taxable period to two years in January 2009 to bolster a then flagging market.

The People's Bank of China is targeting a drop of 22 percent in new lending this year from 2009's record 9.59 trillion yuan and told banks twice this year to set aside more cash as reserves. The first quarter result is due on April 15.