Monetary authorities are moving to curb excess investment in real estate as economic experts have warned against a property bubble that is on the brink of busting.

Shi Jiliang, deputy director of the China Banking Regulatory Commission, revealed that the watchdog is organizing a probe of excessive bank lending for real estate.

"We are mainly targeting bank lending that has grown in an abnormal way and too fast to be in keeping with the economic development," he said.

Lending for the real-estate sector will be one of the key areas to be covered by the inspection, according to the official.

The high-profile move was apparently part of efforts to check the rapid rise in new loans by commercial banks, which jumped to 1.9 trillion yuan (US$228.8 billion) between January and July, more than the 1.8 trillion yuan (US$223 billion) that they lent in all of 2002.

Mortgage loans for housing and automobiles accounted for about half of new medium- and long-term loans of commercial banks.

Although the People's Bank of China issued a directive to tighten bank lending to the real-estate industry as early as June, investment in the sector has maintained a quick surge.

In the first eight months, investment in real estate posted a year-on-year increase of 47 per cent to reach 776.6 billion yuan (US$93.91 billion), according to statistics from the National Bureau of Statistics.

Annual investment in China's housing sector has averaged 30 per cent growth over the last three years.

As of August, bank loans to the sector soared by 58.6 per cent year on year to 194.1 billion yuan (US$23.47 billion).

Vice-Minister of Construction Liu Zhifeng admitted that some regions have invested too heavily in the property market while housing prices have gone far beyond most local residents' means in some cities.

Meanwhile, supply of newly-built houses has already exceeded demand in a number of cities due to unrealistic property development plans, according to Liu.

Government data suggested real-estate investment in 12 provinces and municipalities saw an average increase of more than 50 per cent in the first six months of this year, with the highest reaching 129.8 per cent.

Between January and June, housing prices posted an average jump of 20 per cent in 11 out of the country's 40 key cities.

Citing data from the National Bureau of Statistics, Liu said some 97 million square metres of housing had been left unsold by July.

But economic experts doubted the accuracy of the figure, saying unsold housing may have topped 130 million square metres in the country as a result of a growing number of projects for luxury flats and villas.

They warned that the property market has overheated as investors in some areas blindly poured money into the sector while paying little heed to potential demand.

Bubbles have emerged in the Chinese real-estate industry, said an earlier report compiled by the Institute of Economic Research under the State Development and Reform Commission.

Wang Xiaoguang, co-author of the think-tank report, said the current growth momentum is too strong to sustain.

"If proper measures are not taken to cool the industry, when the bubbles burst, the entire economy will suffer," he cautioned.

The banking sector may first fall victim to the devastating real-estate bubble because quite a large part of property investment has come from bank loans, according to Wang.

The researcher noted that commercial banks tend to be blind to potential risks when the real-estate industry is prospering.

"But it will be fatal for them when the risks loom large," he said.

Experts suggest that the government limit house buying for investment purposes in a bid to reduce possible risks to the property market and keep spare land for housing for ordinary people.

(HK Edition 09/27/2003 page7)