China's property market is in danger of overheating, experts have warned, after figures showed more than 17 percent of disposable income was spent on housing in 2005.

Ministry of Construction figures showed consumers spent 1.42 trillion yuan (177.5 billion US dollars) in buying homes last year.

The National Bureau of Statistics (NBS) said retail sales of consumer goods in 2005 was 6.72 trillion yuan and disposable income was 8.32 trillion yuan, indicating that more than 20 percent of retail consumption and 17.07 percent of the disposable income was spent on housing.

A report on the financial security of China's real estate by the financial research center of the Beijing Normal University controversially warned that 70 percent of urban residents could not afford to buy a new apartment, based on average prices in eastChina, which is relatively costly.

The paradox between lower purchasing power and rising home sales has spawned the phenomenon commonly referred to as "house slaves": the new class of homeowners who face a lifetime of debt and high mortgage repayments.

It indicated the growth in property sales was driven not by active demand resulting from higher incomes, but by "passive demand" caused by exterior forces such as investment, said Gu Haibo, an independent Shanghai real estate commentator.

"A lack of investment channels is one of the major reasons why so much money is flowing into real estate," said Chen Yuxin, an analyst with the research institute of Shenyinwanguo Securities.

He said low returns from the capital market led to more investment in real estate, involving a range of resource factors such as land, energy, raw materials and labor.

Yin Bocheng, a director of the real estate research center of Fudan University, agreed that demand driven by investment initiatives was a major contributor to China's overheating real estate market.

NBS figures show disposable income in Shanghai Municipality totaled 311.52 billion yuan in 2005, while housing sales amounted to 216.33 billion yuan.

The acceleration of urbanization is another reason for soaring property sales.

Data from Shenyinwanguo Securities showed urban construction began to speed up in 2001 and the annual growth rate of investmentin urban infrastructure reached 27 percent in 2005.

Chinese cities saw large-scale demolition of older housing stock, which resulted in a sharp rise in sales, said Gu Haibo.

Moreover, Yin Bocheng said the demand for better housing was also heating the real estate market.

Improving the housing supply with the construction of affordable small and medium-sized apartments and limiting investment-driven sales is the best way to squeeze the real estatemarket bubble, say experts.

Yin said fiscal measures in loans and taxation should be taken as soon as possible and more efforts should be made in containing speculative funds from overseas.

Gu asserted the government should take measures on the supply side as well by targeting finance and land.

However, some local governments, banks and real estate developers had tried to stymie the effectiveness of the macro-control policies taken by the central government, said Gu.

It required detailed implementation rules and more efforts in controlling credit, he said.

Source: Xinhua