China does little to slow property boom

by: Ezra Marbach

The Chinese government raised interest rates on housing loans today. But don't expect the housing boom to come to an end. Here are the details:

  • Interest rates on home loans with maturities of five years were raised to 5.51% from the previous 5.31%.
  • Banks can request a minimum down payment on a home of 30% of its purchase price, up from 20%, in cities where property prices are rising quickly.

Here are some latest statistics on property investment in China:

  • Investment in property, factories and other fixed assets rose 24.5% in the first two months of 2005 over the same period last year.
  • Investments in property alone rose 27% to $14.5 billion in the first two months of 2005.
  • The government's target for 2005 growth is 16%.
  • 75% of all bank loans in Shanghai last year were for real estate.
  • Shanghai property prices increased 10.4% year-on-year in Q4 2004.

Quick thought: Despite concerns of a property bubble, the government's move today is modest. As one analyst put it, while this rate increase wont change the market "it's a signal to remind house buyers of the risk of interest rate increases". More here.