MercoPress. South Atlantic News Agency

China acts to prevent real estate bubble from developing

New house prices in Chine increased 9.1% in the last twelve months

Chinese property prices rose at their fastest annual rate in 18 months in December according to official figures referred to the country’s 70 large and medium-sized cities. Real estate prices rose by 7.8% from a year ago - up from the 5.7% annual rise seen in November and renewing fears that an asset bubble is developing.

Chinese authorities have expressed concerns that property prices are rising too fast. On Tuesday, China's central bank announced measures to curb lending in order to reduce real estate investment.

Last year, Chinese banks issued 1.5 trillion US dollars in loans in order to boost economic growth - with a large proportion being used to invest in property.

One of the leading rating agencies, Fitch Ratings, has been among those expressing concern over the trend, arguing that too much lending could harm the banking sector as well as the property sector.

“Fitch is concerned about an eventual deterioration in banks' asset quality, amid the loan growth acceleration in 2009,” the ratings agency said.

“High investment spending, particularly in the real-estate sector, also carries the risk of asset price misalignments.”

Banks have been told to increase the amount of capital they hold in order to curb lending, and Chinese city authorities have been told to speed up property developments and build more low-cost housing.

The government also this month brought back a sales tax on property sold within five years of its purchase to discourage speculators looking to make quick profit.

China’s Statistics Bureau showed that prices of new houses in December rose 9.1% from the same month last year and 1.9% from November. In December, prices of second-hand houses rose 6.8% from the previous year, and 1% over November.

Last Sunday China’s cabinet issued a notice that required central governmental departments and local governments to strengthen management, stabilize market expectations and facilitate stable and sound development of the real estate market. “With the recovery of the real estate market, such problems as excessively rising house prices have recently emerged in some cities, which call for great attention,” said the release.