Property prices in China rising

Residential property prices in urban areas in China rose for the first time in six months in June, according to the latest official figures to be released.

The prices in 70 major cities increased by 0.2% year on year, the data from the National Development and Reform Commission and the National Bureau of Statistics, showed.

This follows a 0.6% fall in prices in May but echoes unofficial figures which have indicated for a number of months that prices are on the rise amid signs that the real estate market in China is well on the way to recovery.

Analysts also point out that it is a sign that the government's stimulus plans are working. In some areas there is even concern that prices could be rising too quickly.

Since October the Chinese government has taken a series of measures, including tax breaks and preferential rates for first time buyers, to shore up the real estate industry which accounts for more than 20% of urban fixed investments.

The property market started to stabilise in March, when prices rose 0.1% month-on-month. Along with favourable government policies, inflation expectations due to a surge in new bank loans this year is also driving the sector's rebound, according to analysts.

New loans for the first half of the year amounted to $1.1 trillion, according to central bank figures. 'China's residential market has touched its rock bottom and is recovering, however, at a pace faster than reasonably expected,' said Alan Chiang, head of residential of DTZ China in Shanghai.

He predicted that some measures to prevent a boom may have to be taken. 'I would expect that bank lending will be further tightened and mortgage interest rates rise,' Chiang said.

Indeed banks in Hangzhou are already taking measures to prevent an overheating in lending for second home buyers. They have introduced a 40% down payment rule after property prices started surging ahead of other parts of Chine. Some brokers reported increases of 20% in the last three months.

But some think it will have little impact. 'It might affect volume growth but at a moderate rate. Second or multiple homebuyers will continue to view property purchase as a way to hedge against inflation risks amid low interest rates,' said Carol Wu, analyst with DBS Vickers.