Why Did the IMF Urge China and Hong Kong to Tackle Property Bubbles?

What Did the IMF Say?

The International Monetary Fund said in a working paper citing economists’ views that China and Hong Kong needed more measures to rein in property bubbles forming in parts of their markets. Cheap money flowing from the West under ultra-easy monetary policies was stoking asset-bubble threats across Asia, especially in property.

Which Segments Were Overheating?

The paper said mass-market segments in big cities like Shanghai and Shenzhen, and luxury segments in Beijing and Nanjing, looked increasingly detached from fundamentals. China had already rolled out April cooling measures — higher down payments and mortgage rates — plus curbs on second and third homes, with a trial property tax possibly starting in the first half of 2011.

What Policies Were Recommended?

The IMF argued cooling prices required higher real interest rates, a higher carrying cost of homeownership (such as a broad-based property tax), and — for China — alternative investment vehicles beyond housing. Property market direction also feeds into MPF’s China and Hong Kong equity funds, worth members’ attention.