Top research body warns of real estate bubble
By Xie Chuanjiao (China Daily)Updated: 2007-01-13 09:39
Beijing should keep its interest rate high and the real estate sector cool,
according to a recent report from top research body the Chinese Academy of
Social Sciences (CASS).
CASS economists said in the report, 2006-07:
World Economy Analysis and Forecast, that it was necessary to keep the interest
rate high and real estate cool to avoid the risk of a crisis such as the one
Japan weathered in the 1990s.
"China should not increase domestic demand
on the price as it could risk enlarging the real estate bubble," according to
the report.
China should draw lessons from Japan in the 1980s, when the
country's low interest rates caused domestic demand to rise so much it
eventually created a huge real estate bubble for the economy.
"There are
amazing similarities between the current Chinese real estate market and that of
Japan's in the 1980s," the report said.
"Prices in China's property
market have grown fast, and inflation hasn't caught up yet.
"But after two
consecutive years of gross domestic product growth surpassing double digits,
signs of inflation have appeared."
In 1985 under the Plaza Accord the
Japanese yen immediately appreciated, heating up its real estate market. In the
following six years commercial land prices in its six major cities increased
threefold to three times higher than those in the United States at the
time.
Investors considered the property market was the best and most
stable to invest in and believed interest rates would not change. It was easy to
get loans from banks.
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