China's price-to-rent ratio suggests bubble: study

BEIJING (Reuters) - The ratio between house prices and rental rates in several of China's leading cities has soared well above levels that often indicate a property bubble, the Xinhua agency said on Saturday, quoting an official study.

The report from the Chinese Academy of Social Sciences said the price-to-rent ratio for second hand homes had crossed the danger line in large urban centers including Beijing, Shenzhen, Shanghai and Hangzhou.

The ratio measures the rent for 1 square meter of floor space divided by its sales price. The lower the ratio the more healthy the housing market, Xinhua quoted CASS researcher Shan Jingjing saying.

An increase in house prices not matched by a rising rental market can signal an unsustainable price spiral, the researcher said.

"The international warning line is 1-to-200. Once the ratio goes over the line, the market is in danger of a bubble," the report quoted Shan saying.

In the downtown areas of the four cities Xinhua listed, however, the ratio had already reached between 1-to-270 and 1-to-400, the report added.

CASS earlier this year urged Beijing to tighten its credit clampdown on the country's property sector to prevent the sort of real estate bubble that crippled Japan's economy in the 1990s.

China has taken a series of measures to rein in runaway investment in its real estate market. It has tightened credit supply, raised bank reserve requirements and interest rates, and imposed a property transaction tax.

It has also restricted purchases by foreign investors, some of whom are lured by the prospect of further appreciation of China's currency. Shanghai and Beijing are the focus of foreign property buyers.

But despite the crackdown, state media have said, prices of residential properties, office buildings, shopping malls, hotels and land for industrial use remain high.