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Interest rate hikes won't quell appetite for real estate

By Hu Yuanyuan (China Daily)
Updated: 2007-12-22 08:06

Friday's interest rate hike will likely curb investment-oriented house buying but will not deliver a major blow to the property market, experts say.

The People's Bank of China raised the one-year deposit interest rate by 27 basis points to 4.14 percent and the lending rate by 18 basis points to 7.47 percent as of Friday. This is the sixth time the central bank has raised the benchmark interest rates this year.

"The raised lending rate will weigh on homebuyers as they have to pay more to banks. Therefore, property investors may think twice. However, it will hardly change the demand of those who buy apartments for their own use," said Long Bin, head of MyTopHome's research department.

However, even after the sixth interest rate hike of the year, the nation's real interest rate remains negative because of the high consumer price index (CPI). China's CPI, the main gauge of inflation, jumped to an 11-year-high of 6.9 percent in November mainly on food price increases.

But because the lending rate for five-year-plus mortgages remains 7.83 percent, and no changes have made to the public housing fund, the property market is not likely to experience a big shock, Long added.

"Overseas investors will remain interested in China's real estate market next year, despite the government's more restrained real estate policies," said Eric Chan, deputy managing director of Savills (Beijing branch), a UK real estate service provider.

Foreign real estate funds usually make investment decisions on three key points: rent, the growth potential of the property's price and the renminbi's appreciation, Chan explained.

"Take Beijing's property market as an example. We are expecting 5 to 6 percent growth of rent, at least a 10 percent property price increase and more than a 10 percent renminbi appreciation next year," said Chan. "In that case, they have no reason to leave China's property market."

Property prices in China's 70 large- and medium-sized cities climbed 10.5 percent year-on-year in November, with the growth rate 1 percentage point higher than the previous month, according to the National Development and Reform Commission.

(China Daily 12/22/2007 page10)