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IMF urges asset bubble curbs
By Wang Yanlin |
December 4, 2010, Saturday
|
Print Edition
Print Edition
CHINA should raise interest rates further and impose a property tax to curb the risk of asset bubbles and a "disorderly fall" in house prices, the International Monetary Fund said in a report, adding that Shanghai and Shenzhen may be in early stages of excessive price growth.
"There is no sign of a broad-based and significant over-valuation of residential property prices in China today," said report authors, including staff member Ashvin Ahuja. "But there is a risk property values in large cities are deviating from fundamentals."
But overall China's house prices had not been "significantly overvalued" by mid-2010, the IMF said.
In Shanghai, prices of new homes rose for the fourth consecutive month in October by 3.1 percent from September to an average 21,884 yuan (US$3,271) per square meter, according to Shanghai Uwin Real Estate Information Services Co.
It estimated that property prices in China will continue to have a strong propensity to rise rapidly due to low real interest rates, lack of a property tax, increasing availability of mortgage financing and insufficient alternative investment options.
But generally the rise in urban house prices in China have slowed since May after several measures were unveiled to rein in the soaring growth.
Real estate prices in 70 major Chinese cities rose 8.6 percent year on year in October, easing from the fastest pace of 12.8 percent in April, according to the National Bureau of Statistics.
The central government in April imposed tightening policies, including capping the number of homes a family can purchase, canceling preferential interest rate and stopping lending to owners of multiple properties. It has also halted mortgages for third-home purchases and raised interest rates for the first time in almost three years.
But the IMF said the measures "may not be enough to address what is fundamentally a structural problem."
"At its root, high demand for real estate in China is propped up by low perceived cost of home-ownership," the IMF said. "Structurally low real interest rates, high savings, a lack of alternative investment and property tax all work to promote excessive house price inflation."
"There is no sign of a broad-based and significant over-valuation of residential property prices in China today," said report authors, including staff member Ashvin Ahuja. "But there is a risk property values in large cities are deviating from fundamentals."
But overall China's house prices had not been "significantly overvalued" by mid-2010, the IMF said.
In Shanghai, prices of new homes rose for the fourth consecutive month in October by 3.1 percent from September to an average 21,884 yuan (US$3,271) per square meter, according to Shanghai Uwin Real Estate Information Services Co.
It estimated that property prices in China will continue to have a strong propensity to rise rapidly due to low real interest rates, lack of a property tax, increasing availability of mortgage financing and insufficient alternative investment options.
But generally the rise in urban house prices in China have slowed since May after several measures were unveiled to rein in the soaring growth.
Real estate prices in 70 major Chinese cities rose 8.6 percent year on year in October, easing from the fastest pace of 12.8 percent in April, according to the National Bureau of Statistics.
The central government in April imposed tightening policies, including capping the number of homes a family can purchase, canceling preferential interest rate and stopping lending to owners of multiple properties. It has also halted mortgages for third-home purchases and raised interest rates for the first time in almost three years.
But the IMF said the measures "may not be enough to address what is fundamentally a structural problem."
"At its root, high demand for real estate in China is propped up by low perceived cost of home-ownership," the IMF said. "Structurally low real interest rates, high savings, a lack of alternative investment and property tax all work to promote excessive house price inflation."
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