A Chinese government minister warned the real estate market may be overheating, as investors in some places blindly pour money into the sector while paying little heed to potential demand.

The problem is particularly serious in parts of China where the real estate market is only beginning to be developed, Construction Minister Wang Guangtao told a press conference in Beijing.

'Some people may predict the real estate market may be booming in the near future, so a trend of overheating will occur in these areas,' he said.

'It's the construction ministry's responsibility to warn local governments to pay attention to this trend and take effective measures to curb it,' he said.

Wang's warning will sound alarm bells for officials, as a speculative bubble in the property market wreaked havoc on the Chinese economy in the early 1990s.

While the minister insisted the current situation was very different from this period, analysts said some caution was warranted.

'If I were a government official, I would also come out with a warning now,' said Chen Xingdong, chief economist with BNP Paribas Peregrine Securities in Beijing.

Wang declined to give specific examples of cities where overheating was currently being seen.

However, local economists said feverish investment in real estate was taking place not only in large cities such as Beijing and Shanghai, but also in some second-tier cities close to China's east coast.

These include Hangzhou in eastern China, Harbin in the northeast near the border with Russia, and Shijiazhuang, a three-hour drive southwest of Beijing.

Even with all their widely presumed flaws, China's official statistics also contribute to the impression of a dangerous imbalance in supply and demand in the real estate sector.

Money spent on real estate development in the first five months of the year totaled 311-billion yuan ($37-billion), a rise of 35% from the same period in 2001, the National Bureau of Statistics said.

Housing sales increased just 20% in the first five months, while the stock of unsold housing grew 8.2%, according to the bureau.
In May, the average price of commercial and residential real estate fell 3.3% from a year earlier, compared with a 12.3% rise in May 2001.

The excessive investment has come about as local investors have been short of other profitable uses for their hard-earned money.

The stock market is not a very attractive option, with the benchmark Shanghai A-share index down 22% compared with a year ago.

'Many people have money on their hands, but they can't find places to invest it, like stocks,' said BNP Paribas Peregrine's Chen. 'They get tempted when they see the property market is booming.'

AFP