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China deflating realty bubble?

india Updated: Mar 10, 2011 21:53 IST

Chinese officials are blaming speculators for soaring property prices and are vowing to build 36 million affordable homes over the next five years. There are already widespread concerns about China's booming property market and the threat it poses to the country's expanding economy.

China would spend $200 billion on an affordable homes and social housing scheme, said deputy housing minister Qi Ji in Beijing on Thursday.

The authorities have taken various steps to dampen the property market. These include raising interest rates, increasing the downpayment required on second homes and restricting the rights of foreigners to buy property. Two Chinese cities are now imposing sales tax on property deals.

While the measures have slowed growth, many fear it remains too high. In March 2010, urban housing prices shot up by 11.7% year-on-year, according to figures from the national bureau of statistics. December saw the lowest increase in more than a year, but it still stood at 6.4%.

Bears on the financial markets have long warned that China is in the grip of a property bubble, predicting that when it bursts it could knock the economy off course and hamper the global recovery.

More than a year ago, hedge fund king Jim Chanos described the sector as "Dubai times 1,000 - or worse". Though few see it in quite such apocalyptic terms, many echo his concern. Others suggest the situation is controllable, pointing to Beijing's careful monitoring of the situation.

"It won't be easy for prices to fall in the near future, but the bubble will break eventually," said Yi Xianrong, a real estate researcher at the Chinese Academy of Social Sciences.