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China To Let Some Of The Steam Out Of Its Runaway Housing Market

News Posted On: 07 January 2010

The Chinese are rapidly catching up with consumer trends long associated with the West. They are buying bigger flat screen TVs than their Western counterparts, and as a nation for the first time bought more cars than were sold in the US in 2009.

Now it seems they have also caught the second home bug, whether as a holiday residence or buy to let. The Chinese see capital gains on property as an easy way to make money, or hedge against inflation, or both. Well it worked for UK homebuyers during the past couple of decades, credit crunch notwithstanding, so why not in China?

Multiple home buying was partly responsible for rapid market growth last year. The National Bureau of Statistics (NBS) reported that Chinese property investment was up by 17.8 percent for the first 11 months of 2009.

However the rate of house price increase is concerning the Chinese authorities who have for the past six months been hinting at moderating the real estate market. Now on Wednesday it was reported that The Ministry of Housing and Urban-Rural Development intends to curb speculation.

Last year the Chinese government introduced policies designed to help what was perceived as a struggling real estate sector. These stimulus measures will now be adjusted or removed altogether, a process already in train.

For those already on the property ladder or those looking for that second or third home the ministry wants the rules for bank lending stiffened. It has been suggested that banks will keep the present low preferential interest rates for mortgages, but restrict this facility to first time buyers only.

Also, in order to ameliorate a lack of supply - especially of starter homes - the ministry promised to build more affordable houses. This may be seen as increasing the number of homes for sale which should apply downward price pressure. But it will also increase the number of Chinese who become property owners, and eventually these new entrants will want to trade up, which in the longer term should sustain a healthy growth in value of mid and higher end properties.

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