• Fri
  • Jul 11, 2014
  • Updated: 12:36pm

Property rush only a bubble, say economists

PUBLISHED : Friday, 29 October, 2004, 12:00am
UPDATED : Friday, 29 October, 2004, 12:00am

Rosy ministry report justifying soaring real estate prices is countered by critics


A Ministry of Construction report seeking to justify rising real estate prices has fuelled debate on whether the mainland is experiencing a property bubble.


Instead of putting debate on the sensitive subject to rest, the official report, which claimed rising property prices were underpinned by solid demand, drew queries from the country's economists. They said it only provided a snapshot of potential demand for affordable housing instead of presenting an overall picture of the property market.


An economist with the Chinese Academy of Social Sciences said bubbles existed in most mainland cities, where rises in property prices were outpacing increases in personal income.


'The fact of life in China's property market is there's huge need or potential demand,' he said. 'But it doesn't easily translate into active demand.'


On the other hand, property speculation has been rampant, particularly in big cities such as Shanghai and Beijing.


As much as 40 per cent of recent property sales in Shanghai were bought purely as an investment, and apartments often change hands several times before a building is occupied.


'A high number of homes are being bought in the expectation of capital appreciation rather than underlying fundamentals,' the economist said. 'That is a definitive indication of a bubble.'


As more people bought because they thought property prices were destined to rise, rather than because they needed a place to live, the danger of a steep downturn was growing.


Already, a sixth of luxury residential properties in Shanghai are vacant, a quarter in Beijing and a third in Shenzhen, according to state media reports.


In the next few years, the number of unoccupied buildings is expected to increase considerably.


'It sure looks like a bubble and feels like a bubble and I'm afraid to say, it is a bubble,' the economist said.


His argument was echoed by two other academy economists, according to state media reports.


'The report by the Ministry of Construction was assuming potential demand as real demand,' Yi Xianrong , a prominent researcher in the field, was quoted as saying by Beijing Morning Post. The Ministry of Construction released a research report on Monday in an effort to reject recent suggestions by some economists that the mainland's property market is a huge bubble about to burst.


It said the solid demand resulting from the country's urbanisation could sustain the booming real estate sector.


According to official data, average property prices have surged 13.4 per cent in the past year, with housing prices rising 11.5 per cent.


The rising cost of building materials also contributed to price rises.


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