Property Market in China in `Very Big Bubble,' StarRock's Jiang Hui Says

China’s property market is in a “very big bubble” that may last until the government increases interest rates and introduces a real-estate tax to curb prices, according to StarRock Investment Management.

“China’s property market has a very big bubble, which may last for a while,” Jiang Hui, investment director at StarRock Investment, said at a conference in Shanghai. “Only higher interest rates and the introduction of a property tax can bring down real-estate prices.”

The benchmark Shanghai Composite Index has fallen 19 percent this year, after the government increased down- payment requirements on home sales and ordered banks to set aside more deposits as reserves to curb asset bubbles. Even with the tightening measures, real estate prices haven’t slowed from record gains last year. Property prices in 70 major cities across China climbed 10.3 percent in July from a year earlier, the statistics bureau’s newspaper said on Aug. 10.

Property bubbles exist in some of China’s large cities, the People’s Daily reported Aug. 23, citing Ba Shusong, deputy head of the financial institute of the State Council’s Development Research Center. He said there is no evidence of a nationwide property bubble in China.

China, which hasn’t raised interest rates since December 2007, may start increasing borrowing costs from the fourth quarter because of accelerating inflation, large wage increases and “loose” liquidity conditions, RBC Capital Markets said after the release of July inflation data on Aug. 11. The inflation rate accelerated to 3.3 percent in July, the fastest pace in 21 months, pushed up by floods that destroyed crops.

The government is still studying property tax and plans to introduce property tax reform, Xinhua News Agency reported Aug. 24, citing Xu Lin, director of the finance department at the National Development and Reform Commission.

--Zhang Shidong. Editors: Allen Wan, Reinie Booysen

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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