China Jan-Aug property investment growth quickens to 5.4%

[BEIJING] Investment growth in China's real estate quickened slightly over January-August, suggesting investors are still confident of a booming housing market even as more local governments tighten restrictions on home purchases in a bid to keep fast-rising prices in check.

Property investment in January-August rose 5.4 per cent from a year earlier, the National Bureau of Statistics (NBS) figures showed on Tuesday, quickening from an increase of 5.3 per cent in January-July, while property sales by floor area grew 25.5 per cent, slowing from 26.4 per cent.

In August alone, property investment was up 6.2 per cent from a year ago, according to Reuters calculations, compared with 1.4 per cent in July.

Real estate investment directly affects about 40 other business sectors in China and is considered to be a crucial driver for the economy.

A robust recovery in home prices and sales, thanks to a flurry of government stimulus measures, gave a stronger-than-expected boost to the world's second largest economy in the first half of the year.

But rapid price gains in some of the biggest cities fanned fears of a bubble and prompted some local governments to tighten home and land purchase requirements, with cities such as Xiamen, Suzhou, Naning and Wuhan being the latest to implement such measures.

A housing glut continued to take its toll in smaller centres such as rustbelt city Shenyang, which implemented looser buying conditions in an effort to ramp up demand.

China's central bank has become increasingly concerned at the severity of the country's debt problem, with the high concentration of capital in property identified as a major problem.

"We should take a lot of measures to curb excessive bubbles in the real estate sector, curb the flow of excessive financial resources into the real estate sector," Ma Jun, chief economist at China's central bank, said in a recent interview.

The debt ratio of property developers is now nearly 80 per cent and climbing, according to a commentary published in the official Xinhua news agency's Economic Information Daily.

The commentary warned of "irrational increases in leverage" as more home buyers rushed to invest in the overheated real estate market through borrowing. Household loans, which are mainly mortgages, made up over 90 per cent of new loans in July, according to official data.

The commentary said volatility in house prices may cause either a deterioration in financial assets or soak up more capital to prop up the leverage that was threatening to undermine economic policy.

New construction starts in August were up 3.3 per cent from a year ago, measured by floor area, Reuters calculations showed, slowing from 8.1 per cent in July.

Growth in inventory floor area last month was 6.9 per cent higher than a year earlier, compared to 7.7 per cent in the previous month.

REUTERS