Chinese top official warns economy ‘kidnapped’ by property bubble


A top Chinese lawmaker has warned that profiteering by real estate developers is sapping the lifeblood from China’s economy, as authorities make efforts to contain runaway property prices.

Strong growth of real estate prices, sales and construction has powered China’s economy this year, putting gross domestic product on the path to its first annual growth acceleration since 2010.

Meanwhile, an index of Hong Kong-listed mainland property shares has risen 68 per cent this year, propelling property tycoons such as Evergrande Group’s Hui Ka Yan up the ranks of China’s rich list, despite his company’s heavy debt load.

But authorities are increasingly concerned that the reliance on property for growth is fuelling financial risk and encouraging speculation rather than investment in the real economy.

“The real estate industry’s excessive prosperity has not only kidnapped local governments but also kidnapped financial institutions — restraining and even harming the development of the real economy, inflating asset bubbles and accumulating debt risk,” Yin Zhongqing, deputy director of the finance and economics committee of the National People’s Congress, said in a speech on Thursday.

“The biggest problem currently facing the country is how to reduce reliance on real estate,” he added.

A pedestrian walks near Jianwai Soho, a mixed-use residential and commercial complex, in Beijing © Bloomberg

Some Beijing banks are preparing to raise interest rates on home mortgages for first-time buyers, Hexun, a local news website, reported on Thursday. Big cities such as Beijing, Shanghai and Shenzhen have seen the fastest price rises during the past 18 months.

Previous rounds of tightening have focused on second-time buyers. A move to cut credit to first-home purchases would mark an escalation in efforts to restrain prices. But analysts say that Beijing will be careful not to strangle the market, given its importance to the broader economy.

“The goal of property control policies is to stabilise the market, not to send it into a stupor,” said Yan Yuejin, research director of E-house China R&D Institute.

Longstanding efforts to implement a property holding tax have stalled in the face of political opposition from homeowners.

A parallel effort to deal with housing affordability is focused on developing the Chinese rental market. China’s households are traditionally reluctant to rent apartments because of concern over a lack of stability and a belief that spending on rent is a wasteful alternative to building home equity.

But beyond such cultural barriers, Chinese rental markets are often dysfunctional. Unscrupulous property agents post fake rental advertisements and demand large commissions.

The Hangzhou city housing bureau this week said it was joining with online shopping group Alibaba, which is based in Hangzhou, to create the country’s first smart housing rental platform. Hangzhou is one of 12 cities that the housing ministry selected last month for a pilot project to improve local rental markets.

Alibaba will partner with its financial affiliate, Ant Financial to create a consolidated database of rental units from public housing, real estate developers, real estate agents and individuals.

Sesame Credit, Ant Financial’s credit ratings unit, will provide data to enable some flats to be rented with no security deposit. The ratings will also rely on buyer ratings on Taobao, Alibaba’s ecommerce platform.

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