The latest figures from the Chinese property market show some worrying signs of overheating.
In October, property prices rose 3.9pc year-on-year and 0.7pc month-on-month. If you extrapolate the month-on-month growth into an annual figure, prices are now rising at the rate of 9pc, even as consumer price inflation remains low.
The flow of transactions, meanwhile, was up 81.7pc year-on-year, although this is partly because the sector had ground to a halt last year during the financial crisis.
The property market is key to the Chinese economy, accounting for more than 20pc of fixed-asset investment, the main driver of Chinese economy growth in recent years.
But the rapid expansion of the market must be giving Beijing some policy headaches. If prices are rising by 9pc, it is well ahead of the 2.25pc one-year bank deposit rate and 5.31pc one-year lending rate. All the signs point to a bubble, and to overcapacity.
So far, Beijing has tightened rules on second home mortgages, but this is failing to dampen the market. In the coming months, regulators will probably raise the downpayment requirement again to at least 40pc.
This strategy worked last time, when the property bubble gently deflated in 2007/8. But this time around, it may not be enough. With the outlook generally uncertain, rich and middle class Chinese are putting their money into bricks and mortar as a safe haven, rather than just as a speculative investment. And they have cash – the trillions of yuan of stimulus money is still in the system.
All of which points to a much sharper crash when it finally comes. The pace of construction this year has been astonishingly rapid, and there’s some doubt about whether China needs all the hotels, offices and shopping malls that are being thrown up. Looking at the market in the cold light of day, it is difficult not to feel bearish.
