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Chinese real estate market is showing signs of overheating

A Chinese government minister warned yesterday that 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.

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.

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.

And a bubble is building in the two eastern metropolises of Shanghai and Beijing, according to Andy Xie, Greater China economist at Morgan Stanley Dean Witter in Hong Kong.

"Capital inflows from Hong Kong and Taiwan have caused prices to go up and encouraged locals to jump on the wagon," he said.

The overseas investors are lured by Chinese property prices that are significantly lower than what they can find at home in Taipei or Hong Kong, he said.

Despite the danger signs, Construction Minister Wang said he did not believe a real estate bubble is about to develop of a magnitude similar to that China experienced a decade ago.

"There's absolutely no comparison between the two situations," he said. "At that time, China's property market had just emerged, whereas now it has already started to be regulated."
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