Foreign funds pour US$300b into mainland
Daniel Ren in Shanghai
Speculators target property sector
Overseas funds have channelled up to US$300 billion of investments through underground networks into the mainland, particularly the property market, on expectations of a further rise in home prices before the Beijing Olympics next year, according to a researcher who headed a government-commissioned study.
Li Youhuan, a professor with the Guangdong Academy of Social Sciences, said his recently completed one-year survey showed that overseas funds spent US$250 billion to US$300 billion on the mainland through underground networks.
Mr Li admitted that it was just an estimate after a drawn-out research and investigation, but pointed out that massive funds had been thrown into the housing market after May 30, when the stock market slumped following Beijing's decision to triple the tax on stock trading.
This triggered a fund flight from equities to properties, he said. 'The punters are cocksure that mainland housing prices will gain upward momentum before the Beijing Olympics,' he said.
Mr Li was commissioned by the government to set up a research team to study the 'hot money' issue. He has submitted the report to the government.
One of the common ways to channel money illegally into the mainland was through falsified import orders, he said.
Although unable to give an exact amount of the money that has flowed to the property sector, Mr Li said the investment size was 'enormous'.
'Although the hot money figure looks stunning, the fact is that illegal funds have been very active in the housing market, and there are no signs that the fund inflow is slowing,' he said.
According to a survey by Jones Lang LaSalle, housing prices in 20 cities across the mainland have jumped 10.5 per cent so far this year.
'Housing prices rose so rapidly that would-be sellers kept raising their quotations,' said Kenny Ho, the head of research for Jones Lang LaSalle Shanghai. 'Foreigners are now showing keen interest in mid-range flats in addition to high-end and luxury houses.'
Analysts said the huge influx of capital into the housing market also suggested that the central government's tightening policies on land supply and bank loans might not have been effective.
In fact, tightened land supply and rising borrowing costs were driving house prices even higher, they said.
'Government officials should let the market govern [property prices and supply],' said Professor Yin Kunhua, of Shanghai University of Finance and Economics. 'Indeed, the craze for properties was a result of the tightening measures.'
Massive funds flock into real estate after May 30 stock market slump
Since the start of the year, housing prices in 20 mainland cities have risen 10.5%