China to invest $200 billion to cool property prices

Unrealictic Valuations May Create Property Bubble in China

Unrealictic Valuations May Create Property Bubble in China

The Chinese government today announced its decision to build 10 million low-cost homes in 2011 at an estimated cost of £124 billion ($200 billion).

The government’s move is expected to cool down home prices which have soared across the country making homes unaffordable for most urban Chinese.

Prices of homes in 68 out of 70 cities jumped in January, data released by government showed. The latest announcement is part of a commitment by the government to build 36 million low-cost homes in the next five years.

The recent jump in prices has raised the concern of a property bubble being formed. Speculators may drive prices up further paving the way for a market crash if not reined in, authorities fear.

“One of the key points we are trying to control, is to postpone purchases by those consumers who don’t need to settle down and buy houses urgently”, said Qi Ji, the Deputy Housing Minister.

The authorities have already initiated steps to control prices including higher down-payments (Lower LTV) and controlling lending for second home purchases.

To make property transactions unattractive, Cities like Shanghai and Chongqing collect additional tax from sellers in an attempt to lower profit margins.

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