China housing market worse than in US, says top advisor

The housing market bubble in China may be worse than in the United States before the global downturn, a central bank advisor warned in an interview on Tuesday. Li Daokui, a member of the People’s Bank of China’s monetary policy committee, said the situation could become a matter of widespread public discontent.

Reuters

“The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK,” before the financial crisis, Li told the Financial Times.

Official data showed Chinese real estate prices in 70 cities have been increasing by 12.8 per cent in April.

“It is more than a bubble market problem,” Li said, fearing high cost of housing could hamper future growth by slowing urbanisation and potentially leaving many locked out of having their own home.

“When prices go up, many people, especially young people, become very anxious,” Li said. “It is a social problem.”

China has already taken a range of measures to prevent the creation of asset bubbles and reduce property price increases, including tightening restrictions on advance sales of new properties, raising the minimum required down payments for second homes and introducing new curbs on loans for the third home purchases.

And China’s State Council announced just after Li’s comments that it would “gradually reform the real estate tax”, the first official sign of a tax on residential housing aimed at dampen soaring prices.

Li said all such measures should be a part of a long-term strategy to bring housing prices under control and avoid and overheating of the economy.

Markets dipped Tuesday on the news that the Chinese economy might be slowing down.

But HSBC economist Qu Hongbin told the AFP news agency he is less alarmed about the situation.

“Overheating risk is likely to ease as the tightening measures filter through,” he said.