Chinese property boom falters, but crash unlikely

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Shanghai, Dec 20 : Wang Zhiyong, a 34-year-old salesman of credit card billing equipment, regrets paying 1.2 million yuan ($163,000) in August for a one-bedroom apartment near Shanghai's downtown area.

He rents out the 46 square metre (495 square foot) apartment, and estimates that gives him a 3.5% annual return. But the bank charges him 7.83% a year on his 20-year mortgage, and interest rates look set to rise further given high inflation. "The investment doesn't make sense if property prices stop rising," said Wang, who is father of a three-year-old son and spent most of his family's savings buying the apartment.

Eight years into a boom that has tripled home prices in major cities such as Shanghai and Beijing -- and pushed them up much faster in downtown areas -- China's red-hot property market is showing signs of flagging. High prices, rising interest rates and a government drive to cool speculation are dampening the market. Many Chinese bought property several years ago partly because of talk that preparations for the 2008 Beijing Olympics would boost prices in the capital and other cities -- so now that the Olympics are near, some fear a crash may be looming.

But most experts still insist prices won't collapse, and that a repeat of the U.S. subprime mortgage crisis, where the pricking of a property bubble was worsened by problems with financial derivatives that aren't used in China, is not on the cards. While bubbles in China's priciest urban districts may burst, rising incomes, land shortages and the migration of millions of people to cities will support prices in most places, they argue. "Prices are falling only in several cities where speculation has been rampant," said Cao Xute, analyst at Sinolink Securities. "Prices in cities such as Shanghai and Beijing are still mostly underpinned by strong demand from consumers." Property jitters began rising a few weeks ago with news from China's prosperous southern cities. In Guangzhou, new home prices slid 10 % in November after apparently peaking in October, the local Land, Resources & Housing Administrative Bureau said. In Shenzhen, prices sank as much as 20 % in some cases, local media reported, though no official data is available.