Real estate sprees imbalance a growing economy
- Source: Global Times
- [22:12 February 07 2010]
- Comments
By Winter Zhou
When the Chinese government approved a plan in January to build South China's Hainan Province into a top international tourism destination, the island's property prices began skyrocketing as more and more investors and speculators flooded into the market to reap staggering profits.
Prices for some properties are rising by about 1,000 yuan ($146.39) per square meter every day. The price for high-end apartments on the artificial Phoenix Island, known as the "Oriental Hawaii," has exceeded 90,000 yuan ($13,175) per square meter.
Most of the buyers are businessmen from Zhejiang Province in East China, or coal mine bosses from Shanxi Province in North China.
Many Chinese businesses are speculating in the real estate sector, which will undoubtedly affect their business elsewhere, as they devote more resources and efforts on the real estate market and neglect research and development (R&D).
Meanwhile, putting more money into the real estate sector will also hurt a balanced economic structure and limit consumption of other products.
But why do Chinese businesses and ordinary people prefer the real estate sector? And why don't they put money into the industrial sector and expand their own businesses?
There are two answers. First, profiting from property takes much less time and is easier. Second, China lacks diversified investment channels. Some high profitable monopoly sectors such as energy and railways are reluctant to receive private capital, forcing investors to buy real estate under the pressure of inflation.
It takes real estate investors only one or two years to see their property prices double amid a real estate boom encouraged by the country's "moderately loose" monetary policies.
New loans to the real estate sector stood at 576.4 billion yuan ($84.38 billion) last year, according to the People's Bank of China. Loans to the sector jumped 30.7 percent last year, or 20.4 percent more than in 2008.
Loans to homebuyers also reached new heights, with new mortgage loans in 2009 reaching 1.4 trillion yuan ($204.95 billion) and outstanding mortgages at the end of 2009 were up 47.9 percent year-on-year, compared with a 10.5 percent growth in 2008.
Homebuying sprees raised property prices in 70 Chinese cities by 7.8 percent in December from a year earlier, the fastest pace of grown in 18 months, the National Development and Reform Commission said.
Most consumers take a skeptical attitude to the official figures, which are inconsistent with their real feelings that the home prices are too high to accept.
