Reuters - SOHO China CEO sounds alarm about property bubble

* Serious bubble in China, especially in second-tier cities
* Beijing needs to tighten credit to control price rises
* Property prices to increase if loose credit policy remains
* SOHO China has 50 bln yuan worth of space for sale

By Langi Chiang and Simon Rabinovitch

BEIJING, Dec 17 (Reuters) - China is already facing a serious property bubble, especially in second-tier cities, and the government must tighten bank lending to prevent it from swelling to dangerous proportions, a top developer said on Friday.

The warning by Zhang Xin, chief executive officer of SOHO China Ltd <0410.HK>, chimes with the views of many analysts who believe that soaring Chinese property prices are unsustainable. But it puts her at odds with other real estate bosses, who say that the hot market is justified by fundamental demand.

The government has vowed that it will crack down on speculative investment in housing, but Zhang said it will need to act more decisively than it has done so far to head off the burgeoning risks.

"The government needs to realise how serious the asset bubble is," Zhang told Reuters. "It cannot control the asset bubble by just saying a few words. The most fundamental solution is to tighten credit."

Beijing earlier this month pledged to use a range of tools including land-use policies and taxation to curb excessive property price rises in some cities.

However, a host of property stimulus measures, such as discounts on mortgage rates, that were adopted during the global financial crisis are still in place, and bank lending is set to remain relatively loose in 2010 after surging to record heights this year.

"There is a bubble in every city. It s better in Beijing and Shanghai because at least there is real demand," she said, while adding that both of these leading Chinese cities had higher vacancy rates than London or New York in office and retail space.

The picture is much worse in second-tier cities, where supply far outstrips owner-occupier demand and many buildings remain empty, she said.

When property transactions dried up last year in the midst of the financial crisis, Beijing stepped in to spur buying activity and instructed banks to open their credit taps.

Housing prices dipped only briefly and have rebounded strongly in recent months, climbing beyond their pre-crisis levels. China s main nationwide property price index rose 5.7 percent in November from a year earlier.

"When one gets fat, you need to cut weight. But this is like you haven t started losing weight yet and food is coming again," Zhang said.

More than 1.6 trillion yuan, or about one-sixth of China s new loans, went to the property sector in the first 11 months, including mortgage loans to home buyers and lending to developers.

Zhang said that if China s monetary stance remained accommodative throughout next year, property prices would continue to trend upward.

Under such conditions, SOHO would step up efforts to sell more in 2010 than this year s contracted sales income of 13 billion yuan, she said. Currently, SOHO has space worth more than 50 billion yuan available for sale.

Zhang said that SOHO feels little urgency to acquire more land or property next year, having paid a combined 8.8 billion yuan in the second half to buy a land lot and an office building in Beijing and another office complex in Shanghai.