The central bank's 27-basis-point interest rate increase has had little impact on home and stock prices in the short run, but rubbed salt into the wounds of an already sluggish real estate industry.

 

"The rise will have little effect on home prices in general and people won't suspend purchases because of it," said Pan Shiyi, chairman and co-president of SOHO China.

 

Property stocks in general did not drop but instead climbed on the back of a rise in the benchmark index of Shanghai and Shenzhen bourses.

 

But Wang Deyong, senior property stock analyst from CITIC Securities, described the rate rise as "bad news" for the industry.

 

"Due to the sluggish situation in areas where the real estate companies operate, the rise of property stocks can only last a short time," said Wang.

 

Wang said he believes several factors have already exacerbated the difficulties of the real estate industry in China.

 

"We predicted the government will soon roll out a new round of macro control measures to regulate this industry, and these measures are very likely to be more intensive than those of last year," Wang said.

 

It's generally believed that the regulatory measures adopted by the central government last year, which included tax, interest rate, mortgage as well as land policy, did not achieve the expected results and failed to rein in the rapid increase of housing prices across the nation.

 

In addition, two positive functions that the real estate industry can perform - one in pushing forward social development and the other in propelling the building of a prosperous society - did not figure at the recent session of the National People's Congress though previously mentioned.

 

In view of this, Wang said, "We remind investors to maintain a cautious attitude toward stocks in this particular sector since the whole industry is still in the doldrums."

 

Starting with the interest rate hike, Wang holds, other macro control measures will follow soon. "These policies are serious tests for the industry," Wang said.

 

(China Daily March 20, 2007)