THE world business elite raised concerns over China s property prices at its annual get-together in Davos, with some worrying that if the bubble bursts it could hurt growth.
Can China deflate its real estate bubble without generating a hard landing in its economy? It s a serious problem. The Chinese themselves are quite worried about it, said Nariman Behravesh, an analyst at IHS Global Insight.
If you look at the ratio of home values relative to GDP, China is about the same level as Japan s before Japan s bubble burst, he warned.
Fueled by rapid economic growth and urbanization, China s property prices last year defied cooling measures, climbing four straight months to December.
The Chinese Academy of Social Sciences, a government think tank, warned in December that of 35 major cities surveyed, property prices in 11, including Beijing and Shanghai, were overvalued by between 30 and 50 percent.
On Friday, authorities launched a property tax on two of the country s biggest cities Shanghai and Chongqing. Those who buy high-end second homes in those cities must now pay a 0.4 to 1.2 percent annual tax.
Earlier in the week, the government hiked the minimum down payment for second homes to 60 percent from 50 percent.
Down payments for first homes have to reach at least 30 percent, and banks have been ordered not to provide loans for third or later homes.
Zhang Xin, who founded Beijing s biggest property group Soho China Ltd., said housing has somehow become a very political issue in the Asian giant.
This industry somehow manifests the two most important social elements in China. One is the income disparity between the rich and the poor, the other is corruption, she told a panel at the World Economic Forum.
Government corruption has also been linked to property development, and stories abound of farmers forced off their land by crooked developers.
The government is likely to continue the austerity measures, but the question is if these are effective, Zhang said.
In my own view the market economy has grown to the stage that it s very strong and sizeable, that is much stronger than government thinks, and that s why these measures have not been the most effective and I think next year will be the year to watch, she said.
Kishore Mahbubani, a pundit on Asia, voiced faith in Chinese authorities to get a grip on the situation.
I definitely think they will have to do something about housing prices, but you can control the bubble. I think the Chinese Government is trying to do that, said Mahbubani, dean of Singapore s Lee Kuan Yew School of Public Policy.
There will always be challenges, it s not normal for societies to keep growing. They will stumble, he said.
The key is the capacity of the Chinese Government to recover from this crisis. The capacity for them to do so is really at an all time high and when the capacity to recover is so strong, they can ride through a few crises too, the dean said.(SD-Agencies)
