House prices will continue to rise all over China because of a lack of actual investment in property but a rising purchase potential, the central bank predicted Tuesday.

In a recent report, the People's Bank of China has warned that a slowdown in property investment is likely to widen the gap between housing supply and demand, therefore prices will rise continuously.

The central bank suggests the government should be extremely concerned about the trend in the real estate market.

Researchers say part of the reason for the rocketing prices are the government's efforts to control its red-hot economy.

Lin Yueqin, a researcher with the Chinese Academy of Social Sciences, said that in recent years the real estate industry has been the engine driving domestic economic growth, as well as an exorbitant profit-making sector.

"But as loan frequency, fixed asset investment and the industrial economy have all been slowed down, supply will not meet the demand of the buyers," said Lin. "Thus prices will go up."

A survey on real estate markets in 35 major cities has prompted the National Development and Reform Commission to conclude that China's house sale prices in the second quarter this year grew by 10.4 percent year on year.

The price level was 2.3 percent higher than the first quarter this year, and the land price in the second quarter rose 11.5 percent year on year.

Strong purchasing potential has spurred on prices which have been steadily increasing for four years.

The 35-year-old Fan Dingyu, a restaurant boss in mountainous Tongjiang County, Sichuan Province, is now considering buying a 100-square-metre apartment in the provincial capital Chengdu.

Fan, the mother of a primary school child, said the house will cost her about 280,000 yuan (US$33,700) -- equal to the amount an average worker would earn in 30 years.

"My husband and I bought the house for two reasons: one for investment, the other for my child's education," said Fan, who plans to send her to school in Chengdu next year.

Fan is not alone. The Sichuan Provincial Construction Department said about 20 percent of home buyers in Chengdu are not local residents.

In the second quarter of this year, housing prices in the Chinese economic hub of Shanghai have reached a year-on-year increase of 21.4 percent, the fastest growth among 35 major cities.

Shanghai has taken the lead nationally, followed by Ningbo, Tianjin, Nanjing and Chongqing.

Shanghai's increase has already topped those of other cities during the first quarter of this year, achieving a nearly 30 percent year-on-year increase.

"Housing prices nationwide have risen quickly," the National Development and Reform Commission said.

Commercial house prices topped 5,118 yuan (US$617) per square meter last year, about 24.2 percent or 1,000 yuan up from the previous year.

Yang Shen, chairman of the China Real Estate Association, said tougher measures should be put in place to ward off risks in China's bullish real estate sector despite housing demands in the country remaining strong.
 
(China Daily August 11, 2004)