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Top banker sees ‘some bubbles’ in property market
Reuters
08 June 2011
China should raise interest rates further to help rein in the property market, a top Chinese banker said in comments published yesterday, amid talk of an imminent rate rise.
‘It’s necessary for China to raise interest rates because there are some bubbles in the Chinese property market,’ the China Securities Journal quoted Guo Shuqing, chairman of Construction Bank Corp, as saying.
Mr. Guo cautioned against potential risks in the property market in the major cities of Shanghai, Beijing, Shenzhen and Guangzhou.
In the longer term, China must keep raising nominal interest rates to correct the negative real interest rates, which could distort resource prices, Mr. Guo was quoted as saying.
But a US property developer has claimed that China’s exuberant property market will not collapse as prices are supported by brisk economic growth, although there could be a bubble in the hotel sector.
Ambrish Baisiwala, chief executive of Portman Holdings, who helped develop more than US$30 billion worth of properties at struggling Abu Dhabi developer Aldar Properties before joining Portman in 2006, said the US firm would like to expand in China.
Portman’s China ambitions underline the difficulties Beijing faces in cooling the red-hot property market, where months of official clampdown has not dampened the mood among investors and developers, as seen at a real estate conference last week.
Many at the conference in Beijing were confident that China can sustain its solid economic growth pace of about 9 per cent over the next five years.
But Mr. Baisiwala said there appears to be a bubble in China’s hotel industry because authorities were exacerbating an oversupply in the sector by encouraging developers to build even more. That has caused investment returns to drop, he said.
Beijing built hundreds of hotels in the run-up to the 2008 Olympics. Other cities such as Shenzhen and Guangzhou, which hosted the Asian Games last year, have also made a big push in their hospitality industries.
The overall fast growth in the property market has generated some waste, Mr. Baisiwala noted. Some new residential and commercial buildings have to be re-designed, re-renovated, or sold at discounted prices due to poor planning or shoddy construction.
With inflation remaining stubbornly high, speculation is rife that the central bank could raise interest rates as early as this week.
China’s annual inflation rate is expected to have edged up to 5.4 per cent in May from 5.3 per cent in April and match a 32-month high seen in March, partly due to the severe drought in some of the country’s key farming regions, which is helping to push food prices higher.
The central bank has raised bank reserve requirements - its preferred tool to mop up excessive cash in the economy - eight times and raised interest rates four times since October.
Chinese banks would be able to cope with any declines in property prices because about half of housing loans in China are secured by collateral, Mr. Guo was quoted as saying.
He also played down risks to the banking system from the huge amounts of loans to financing vehicles run by local governments.