China's booming housing market is a bubble, evidenced by a series of statistics and the actions the central government is taking, an economist said on May 29.

"A series of indicators - including ratios of housing prices to people's income, to rent, and to construction cost - all point to a bubble in the housing market," said Yao Shujie, head of the School of Contemporary Chinese Studies, University of Nottingham.

The nationwide average ratio of housing price to household income in China was 9.1 in 2009, compared with 4.74 for the UK and 3.09 for the US, said Yao, citing statistics from a research on China's property market he conducted in 2009.

The research also shows the nationwide ratio rose to 11.15 for the first two months of 2010 and in some major cities, including Beijing and Shanghai, registered over 20.

Last week, Chinese real estate services company E-House China released similar figures -- China's nationwide average ratio of house price to income was 8.03 in 2009 but those in Beijing, Shanghai, Hangzhou and Shenzhen were over 14.

In addition, the relationship between the house selling price index and the cost of renting index is widening at an accelerated pace, as is the sale price versus cost of construction ratio, according to Yao's research.

Property prices in 70 cities rose in April by an average of 12.8 percent from a year earlier, higher than the annual 11.7 percent increase in March and the fastest pace since the National Bureau of Statistics began to compile monthly figures in July 2005.

"Surging house prices are driven by the supply push as well the demand pull," Yao said, adding that a strong urbanization trend, rising household income, demographic changes, a dearth of investment channels, and Chinese people's deep cultural imperative to buying one's own house has resulted in the growing demand.

On the supply side, local governments' intentions to reap revenues from land sales, developers' hoarding, government's lack of investment in housing, and excessive bank lending to developers have also helped push up prices, he noted.

The government needs to address the problem from both sides, and a slew of measures introduced in recent months, including raising down payments and mortgage rates for second homes, will likely have a bigger impact on in coming months, he said.

"Government policies are heading in the right direction, but the bubble can only burst naturally as a result of the collective action of house buyers, property developers, bankers and government officials. And government intervention can reduce the any damage caused by the deflating of the bubble," he said.

Yao suggested the government make real efforts to build more public housing, guide developers to build more small houses, and start collecting property taxes.

(Xinhua News Agency May 31, 2010)