Property costs a problem

PUBLISHED : Monday, 05 November, 2007, 12:00am
UPDATED : Monday, 05 November, 2007, 12:00am

Soaring mainland property prices look set to replace consumer-price inflation as Beijing's biggest macroeconomic risk after land prices rose by 15 per cent in the third quarter, analysts said.

Rising land costs mean double-digit increases in housing prices are virtually certain next year, according to a report by Beijing-based economics consultancy Dragonomics.

'The real macro problem we see is not consumer-price inflation but asset price bubbles. In particular, property prices are about to take off,' said Dragonomics director Arthur Kroeber.

Housing prices in major cities increased 8.2 per cent in the third quarter year on year, accelerating from 5.6 per cent in the first quarter. The major culprit appears to be a surge in land costs in the wake of moderate single-digit rises through most of 2005 and 2006.

House prices in second-tier cities such as Hangzhou and Dalian are looking particularly frothy, according to figures released by the National Development and Reform Commission.

New apartment prices rose by 10 per cent year on year in September, one percentage point above August's figure. Last year, popular discontent at the rising cost of first homes prompted the government to issue tax, credit and land regulations to combat speculation and prevent social unrest.

The central bank clamped down on buyers of second apartments only last month, raising the minimum down payment for secondary mortgages to 40 per cent and increasing the interest rate to 1.1 times the benchmark one-year lending rate.

However, analysts said further measures may be needed to cool the housing market.