HONG KONG • Frenzied property buying in Shanghai and Shenzhen has set alarm bells ringing that a new bubble is forming, just months after China's frothy stock markets crashed, raising fears about a replay of the real estate bust that has hit the nation's growth since 2012.
Home prices in China's southern business hub, Shenzhen, have jumped 52 per cent over the past year, while those in Shanghai surged 18 per cent, prompting the state media to warn against "panic" buying. Prices in Beijing have risen 10 per cent in the past 12 months.
Civil engineer Liu Yihui, 35, recently dumped his equity holdings after losing 40 per cent last year and used the proceeds to buy a 5 million yuan (S$1 million) apartment in Shenzhen.
"People are a bit crazy in this market, but what can you do?" said Mr Liu, who took on a mortgage to buy the apartment, which he is renting out. "Stock returns were terrible, so I made up my mind to put my money in real estate."
In an echo of the buying frenzy that propelled Chinese shares to unsustainable valuations last June, leveraged speculators are snapping up homes in top-tier cities in the hope that prices will keep surging.
Central bank policy adviser Bai Chongen told Bloomberg in an interview that China's monetary policies have encouraged investors to pour money into real estate, inflating prices in cities such as Beijing, Shanghai and Shenzhen and increasing the risk that bubbles could form.
At the same time, smaller property markets are struggling with excess inventory, making it difficult to craft a unified policy response, he said on the sidelines of a joint symposium hosted by the People's Bank of China and the Federal Reserve Bank of New York in Hangzhou.
But prices in many smaller cities have continued falling, though at a slower pace. Hangzhou is planning to give migrant families local household permits, or hukou, to encourage them to buy homes in four counties. In the city of Shenyang, new-home prices slipped 0.5 per cent in January.
A strong rebound is under way in Shanghai, where lines of prospective buyers outside property agents' offices have clogged roads and forced police in the suburban Baoshan district to curb traffic as they sought to maintain order, Caixin reported earlier this week.
Mr Clement Luk, chief executive officer for eastern China at realtor Centaline, said Shenzhen, a booming major city in south-west China, was blazing the trail for Shanghai.
"People think that since Shenzhen has gone up 50 per cent to 60 per cent last year while Shanghai was up only 20 per cent, it should be Shanghai's turn now."
Hong Kong developer Shui On Land last month said it sold out a new residential development in north-central Shanghai on the day of its launch at an average price of about US$1,140 (S$1,600) per sq ft.
The largest unit was a 1,800 sq ft apartment that fetched more than US$2.2 million (S$3 million), and the agent said prices would definitely go up when they start selling a new phase of the development in May.
Shanghai is already trying to ease the pressure, issuing new rules last month to boost the supply of small and medium-sized apartments.
"This rally is too crazy," said a property agent who gave his last name as Xu. "I own three units in Shanghai and I'm planning to sell them. I think a chill wind is blowing to the first-tier city and I worry that the government will implement cooling measures soon."