No housing bubble, but Bank of England says it is watching closely
An audit by the National Audit Office of 36 local governments, including Shanghai and Guangzhou in the south, found that some regions faced growing pressures to repay debt. Four provinces and 17 provincial capitals borrowed 774.7 billion yuan as of Dec. 31, pledging repayment with land-sale proceeds, up 18 percent from 2010, according to the audit offices report released June 10. The Determiners Chinese local government financing vehicles reliance on land sales and rising land prices to repay debt creates many problems, Peoples Bank of China Governor Zhou Xiaochuan wrote in a commentary published on the central banks website Sept. 9. Average starting prices in residential-land auctions, set by local governments after consulting with companies evaluating sites, jumped 16 percent from a year earlier to 1,301 yuan per square meter in the first eight months of this year, according to SouFun Holdings Ltd., which monitors sales in 300 cities.
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But earlier this month, a group representing British property surveyors called on the Bank to take measures to slow mortgage lending if national house price growth exceeds 5 percent a year. Ed Miliband, leader of Britain’s Labour opposition party, said this week that if he wins election in 2015 he would more than double the number of new homes built annually to 200,000 by 2020 to ease a shortage that has helped to push up prices. FOCUS ON HEDGE FUNDS In June, the BoE ordered an investigation into the vulnerability of Britain’s financial institutions and borrowers to higher interest rates when central banks around the world start to wean their economies off massive stimulus. The FPC said in its statement on Wednesday that a moderate rise in long-term interest rates did not pose an immediate threat to major banks and insurance companies and so far “had not led to dislocations in market functioning or significant impact on financial institutions.” However, levels of leverage my company within hedge funds, which could make them vulnerable to a sharp rise in borrowing costs, “needed to be looked at more closely,” the statement said. The Financial Conduct Authority, which is represented on FPC, said it asked a number of hedge funds during the summer about their preparedness for changes in interest rates following the June FPC meeting and as part of routine supervisory work. The FPC’s wider review of rate hikes would continue by looking at what impact “more significant stresses” would have and how any impact would ripple through the financial system.
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