Chinese property boom falters, but crash unlikely

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Shanghai, Dec 20 : Tuesday. It also fuelled a slide in bank shares, threatening to create a vicious cycle between the property and stock markets.

Official data shows bad property loans at some banks started rising in the second half of this year, and they could climb sharply next year if the property market slips.

For example, outstanding non-performing property loans at Guangdong Development Bank, in which Citigroup Inc has a major stake, rose by more than 1 billion yuan ($142 million) in January-October. There are worries that slumping bank shares could in turn drag down the stock market, where many people have been making profits that they invest in property.

In the past three months, Beijing has taken a series of steps to cool speculation in the property market including higher downpayment requirements for second homes, restrictions on lending to developers, and closer scrutiny of mortgage borrowers. A member of the central bank's monetary policy committee, Fan Gang, has even suggested China introduce a general tax on holders of residential property. It's unclear if that might happen, but the suggestion was enough to deter some buyers.

Nevertheless, most analysts think the market will escape disaster. The official Xinhua news agency reported urban home prices in general were up 10.5 % from a year earlier in November, and the government's "property outlook index", designed to indicate future strength in the market, climbed.