Page last updated at 17:55 GMT, Tuesday, 2 February 2010

China's housing market keeps on rising

By Michael Bristow
Beijing correspondent, BBC News

House buyers study model
Investing in property is the best way to maintain the value of your money
Lu Wanpeng

Eager buyers jostle as they queue up outside a city centre housing complex in Beijing on a cold Sunday morning.

Security guards dressed as five-star-hotel doormen keep them in order before the sales centre opens for the first time.

Those queuing are hoping to be first in line to buy the best-located flats in an apartment building that has not yet been completed.

Similar scenes are being played out across Beijing, and in other Chinese towns and cities, as people rush to buy property as soon as it is built.

Some economists - and a number of government officials - worry that rapidly rising prices could lead to a bubble, and stoke inflation.

The Chinese government has over recent weeks moved to rein in bank lending in a bid to cool a market that could be growing too quickly.

Middle class customers

But in Beijing, at least there are few signs that the city's residents are getting tired of buying new homes.

Villa interior
Our project is targeted at the middle class and people who've returned from overseas
Sales manager Wang Chao,

A bus tour of four new housing sites in and around the Chinese capital, organised by the property website, attracts dozens of people.

They are here to view a range of homes, from small city centre apartments to giant villas in the distant suburbs.

The villas offer a dazzling vision of a future lifestyle for a nation that has only recently again accepted the idea of luxurious living.

In the show home there are chandeliers, sumptuous French-style furniture and wine racks filled with bottles.

The sales manager, Wang Chao, is keen to stress the benefits of living in one of the villas - hot spring water piped into every home - and downplays the very long commute into the city.

"Our project is targeted at the middle class and people who've returned from overseas," he says.

Maintaining value

A villa in the complex, in Changping District to the north of Beijing, costs between 5m and 7.5m yuan ($732,000 - $1m, £461,000 - £691,000).

Workers demolishing a building in Beijing to make way for redevelopments
Small old buildings are demolished, making way for large new ones

Lu Wanpeng, 30, one of the potential buyers on the tour, is more interested in an apartment nearer the city centre.

"I have already got a flat, but I want to upgrade and make an investment at the same time," he says.

Mr Lu bought his first home in 1998 for only about 5,000 yuan per square metre.

At 27,000 yuan per square metre, the flat he is particularly interested in on the tour costs more than five times as much.

Despite the incredible rise in house prices over recent years, he does not believe that they will fall.

"Investing in property is the best way to maintain the value of your money," he says.

"That's one of the reasons why I'm spending money on a flat."

Fundamental demand

Buying property is particularly appealing in China because the limited financial sector offers few other investment options.

Chinese worker at the building site of a property development project in Shanghai
The building boom is evident everywhere in China

People buy homes as a way of saving for the future.

This is particular important in China, where the population cannot rely on state pensions and other social security benefits.

In Beijing, it is not hard to find people who own two or three properties.

Louis Kuijs, an economist at the World Bank in Beijing, says China still needed more houses, despite several years of fast-paced building.

"In a rapidly growing country like China that still has a low stock of housing, there is a fundamental demand for new homes," he says.

Government stimulus

On top of that, the housing sector got a boost last year when the government pumped billions of dollars in the economy to offset the effects of the global downturn.

"The message from the authorities was that it's good to invest in real estate again," says Tim Condon, chief economist in Asia for financial services firm ING.

A year later, with the economy over the worst, the government is looking to limit the pace of house price rises.

"It's not a problem per se, but the lessons from the US from 2007/08 is that a housing price bubble can create unbelievably bad problems," says Mr Condon.

Building houses

The government might cool down the housing sector, but in Beijing the search is still on for new sites for development.

An area of traditional, one-storey courtyard homes near to Beijing's famous Temple of Heaven has been earmarked for destruction.

Residents have been offered financial incentives to move - 40,000 yuan per square metre compensation.

One man with a home in the district, who does not want to be named, says he has accepted the offer.

He already has two apartments in Beijing and he is going to use the compensation to buy a third.

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