Inflation, asset bubble and other risks are likely to occur: analysts
China's home prices remain high in July, with most cities recording month-on-month gains, which analysts said could result in inflation, a property bubble and other risks like mortgage defaults and non-performing loans if prices continue to grow.
Most cities reported month-on-month growth in July, with 51 of the 70 large and medium-sized cities monitored seeing new home price growth, the National Bureau of Statistics said Thursday.
Prices of new homes rose the most in Xiamen, city in East China's Fujian Province, recording a monthly increase of 4.6 percent, followed by Hefei, East China's Anhui Province at 4.2 percent. Shenzhen, South China's Guangdong Province, posted a 2 percent monthly growth, the largest among first-tier cities.
For previously owned homes, 51 cities saw a month-on-month increase while 12 reported a decline in July, compared to June's numbers of 48 and 14, respectively.
"China's home price growth rate is faster than expected, which could lead to inflation," Yin Bocheng, director of the real estate research center at Fudan University in Shanghai, told the Global Times on Thursday.
High home prices lead to high rent, which boosts residents' living costs and reduces their disposable income and social consumption, Yin explained.
"Rising home prices also inflate domestic companies' overhead due to increased costs in offices, stores and even salaries, which may limit the growth of the real economy," Yan Yuejin, an expert from E-house China R&D Institute, told the Global Times on Thursday.
Accumulative costs will in turn drive up prices, Yan said, noting that inflation would then speed up.
Property bubble
The country's new loan volume increased by 463.6 billion yuan ($69.91 billion) in July, of which about 99 percent are household loans, data from the People's Bank of China (PBC) showed on August 12.
The property sector plays a significant role in China's economic growth amid downward economic pressure, but a bubble may be created in the robust industry if too much money flows into the housing market on speculation and bets on high prices of land, Yin warned.
The substantial growth in household loans is mainly linked to the booming real estate sector in a number of cities, with average monthly individual medium- and long-term mortgage loans approaching 400 billion yuan in the first seven months of 2016, the PBC reported on Monday in a statement on its website.
Rongxin (Fujian) Investment Group Co bought a land parcel in Shanghai's Jing'an district for 11.01 billion yuan, cnstock.com reported on Thursday.
With a price of gross floor area at 100,315 yuan per square meter and a premium rate of 139 percent, this has broken records in terms of price, according to cnstock.com.
Tightened regulations
Yan predicts domestic home prices will continue to rise, especially in second-tier cities. "Generally speaking, economic bankruptcy is unlikely to take place but economic risks like mortgage defaults and non-performing loans in commercial banks will increase," he said.
The authorities are aiming to reduce inventory instead of allowing the bubble to burst, Yin said, noting that it will be necessary to tighten lending in some second-tier cities.
Earlier this month, Nanjing in East China's Jiangsu Province raised the minimum down payment on a second house to 50 percent.
Meanwhile, Suzhou in East China's Jiangsu Province said no loans would be provided for buyers who already have two or more apartments and are still in debt.
