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China Property

Beijing’s monetary policies increase risk of property bubbles, says PBOC adviser

Meanwhile, smaller property markets struggle with excess inventory

PUBLISHED : Thursday, 03 March, 2016, 8:20pm
UPDATED : Thursday, 03 March, 2016, 8:20pm

Beijing’s monetary policies have encouraged investors to pour money into real estate, inflating prices in cities such as Beijing, Shanghai and Shenzhen and increasing the risk that bubbles could form, central bank policy adviser Bai Chongen said.

At the same time, smaller property markets were struggling with excess inventory, making it difficult to craft a unified policy response and requiring careful coordination with fiscal measures, he said on Wednesday on the sidelines of a joint symposium hosted by the People’s Bank of China and the Federal Reserve Bank of New York in Hangzhou.

“I can’t say whether there are bubbles right now, but we’re worried about such a problem,” said Bai, an economics professor at Tsinghua University in Beijing. Government goals to cut oversupply in smaller cities and controlling the bubble in bigger ones “are contradictory”, he said.

I can’t say whether there are bubbles right now, but we’re worried about such a problem
Bai Chongen, PBOC policy adviser

Shenzhen is one of the first-tier cities where prices have soared. New home prices in the city rose 508.5 per cent between 2006 and 2015, with an annual growth rate of 20.4 per cent, according to a home price index study released early this week by Tsinghua University and the Lincoln Institute of Land Policy, a research firm.

Prices in Shenzhen skyrocketed 72 per cent in the past 12 months, to a record 48,095 yuan per square metre in February, according to Shenzhen government data – more expensive than in Shanghai or Beijing. The growth prompted Xinhua news agency to warn of increasing leverage risks.

Shenzhen Party Secretary Ma Xingrui said on Wednesday the city would increase land supply and produce 60,000 affordable home units as a way to regulate the market. It would also introduce measures to tackle speculation and the flipping of housing units for profit.

Bai said previous policy measures to encourage people to buy homes included reducing down payments and loosening restrictions on purchases in certain locations. “Interest rates have gone down a lot, and it would certainly boost asset prices in tier-one cities, but that doesn’t help tier-three or -four cities with their overly high inventories,” he said.

Bai is one of three outside academic advisers on the PBOC’s 15-member monetary policy committee led by governor Zhou Xiaochuan. The trio offer analysis to policymakers but do not set policy themselves.

The overhang of excess housing supply continues. While new construction is running at about 10.5 million units a year, demand is for less than 8 million units per year, according to an analysis by Bloomberg Intelligence analyst Fielding Chen in Hong Kong.

“There won’t be new investment in tier-three and -four cities,“ Bai said. ”And there shouldn’t be any new investment – there’s already so much in inventory.”