Foreign investors blamed for surge in property sector

PUBLISHED : Wednesday, 26 April, 2006, 12:00am
UPDATED : Wednesday, 26 April, 2006, 12:00am

A former senior Ministry of Construction official yesterday accused foreign investors of driving up the mainland property market and urged the government to use economic rather than administrative means to cool the overheated sector.

At the launch in Beijing yesterday of the 'Blue Book on Chinese Real Estate' produced by the Chinese Academy of Social Science, Yang Shen , former deputy director of the ministry, blamed foreign investors for soaring property prices in mainland centres including Beijing, Shanghai and Guangzhou.

Mr Yang identified investment firms Morgan Stanley and Goldman Sachs, and Taiwan-backed Hong Kong investors as the main speculators.

'[Foreign investors] backed up by strong capital reserves swarm to the mainland. They can legitimately raise funding from the stock market ... so they never care about the [property] price,' he said.

'They focus their speculation on ready-made buildings, giant shopping malls, even though the assets cost 20,000 to 30,000 or even 100,000 yuan per square metre.'

Mr Yang said it was also easy for foreign investors to tender for big projects through co-operative agreements with local governments because it was general policy to attract foreign investment.

'Local governments have the power that investors need and the investors have the money that local governments want. So they can make deals very quickly,' he said.

Mr Yang, who is also a former chairman of the China Real Estate Association, rejected suggestions that China had a property bubble, but said government had to use economic powers to temper the price increases.

He said the government had failed to control soaring prices last year because it had overused its powers to block land supply.

Mr Yang suggested the government expand land supply, increase land auctions and lower housing loan interest rates. He also said authorities and academics were seriously misleading the market about the state of the sector.

'[For example] the central government said that only 17 per cent of spending on the nation's fixed-asset investment was property investment,' he said 'But my experience and research tell me that the real situation is more than 40 per cent.'

Niu Fengrui , director of the City Development and Environmental Research Centre at CASS, said the high percentage of investment in property was caused by market demand.

'Actually, China has not said goodbye to housing shortages. What we have overcome is gaps in port facilities, postal services, steel production and other areas,' Professor Niu said. 'So I don't agree that the high property prices have been caused by developers.'

But Wang Yanzhong , deputy director of the academy's Scientific Research Bureau, said the property boom was the result of a flawed housing system.

'First of all, there is no low-cost accommodation on the market for low-income residents who need housing,' Professor Wang said. 'Meanwhile, investors who have extra money have no other way to earn a return besides investing in the property market.'