Home truths from IMF on property price threat

Monetary fund says systemic crisis could follow 'unsustainable' boom

The International Monetary Fund issued a warning on Thursday about an "unsustainable" housing boom.

The agency also launched a new index that tracks developments in the global housing market, in an effort to avoid the boom-bust pattern in house prices that it said preceded more than two-thirds of 50 recent systemic banking crises.

The Washington-based fund's new global house price index showed that 33 out of 52 countries, including China, experienced increases in housing prices over the past year.

"While a recovery in the housing market is surely a welcome development, we need to guard against another unsustainable boom," Zhu Min, the IMF's deputy managing director, wrote in a blog post on Thursday.

The ratios of house prices to rents and incomes are often used as an initial check on whether house prices are out of line with economic fundamentals, Zhu wrote.

And those ratios remain well above the historical averages for a majority of the Organization for Economic Cooperation and Development countries, including Australia, Belgium, Canada, Norway and Sweden, where a series of house prices, rents and incomes over a number of years is available.

In China, the price-to-rent ratio is well above 50 in Beijing and Shanghai, much higher than the historical level in developed economies. And housing prices have started to soften, which are stirring worries that China's housing market might crash and cause an economic" hardlanding" .

The average price in 100 Chinese cities sampled was 10,978 yuan ($1,770) per square meter in May, a dip of 0.32 percent month-on-month, according to the China Index Academy Ltd, a Beijing-based research institute that's wholly owned by SouFun Holdings Ltd. That marked the first month-on-month drop since June 2012.

"We do not expect a sudden collapse of property prices or a financial or balance-of-payments crisis, as seen often in emerging economies", wrote UBS AG's Hong Kong-based China economist WangTaoin a May 27 note.

She said that homebuyers in China aren't heavily leveraged and the government still has many ways to stabilize construction and support economic growth. The government, for example, can increase infrastructure investment and subsidized housing construction, accelerate pro-growth reforms and eventually ease home purchase restrictions as well as relax credit and hukou (residence) policies to help boost property demand.

In his blog post, Zhu said that the tools for containing housing booms are still being developed, but he encouraged countries where home pricesare "exuberant" to take action.

"The interactions of various policy tools can be complex. But all this should not be an excuse for inaction. The interlocking use of multiple tools might overcome the shortcomings of any single policy tool," he wrote.

gaochangxin@chinadaily.com.cn