In late October, China's central bank did something it hadn't done in nearly a decade-it raised interest rates. Both lending and saving rates were hiked by 0.27%, with lending rates topping off at 5.58% and savings deposit rates at 2.25% over a one year period. The spike in interest rates is another tool being utilized to reign in China's overheating economic development, and in particular to address the specter of rising inflation rates-which hit a high of 5.3% over the summer, a considerable change from the slight level of deflation China had been experiencing only a couple of years ago.

Macro economic adjustments have been implemented for several months now in an effort to put the breaks on the breakneck growth in certain sectors of the Chinese economy. The main sectors targeted are steel production and the real estate industry, both of which have been inundated with countless billions of dollars worth of investment or loans over the past few years, and now threaten to vastly over supply Chinese demand in these sectors if left unchecked. China's central bank hoped that a hike in interest rates would also help to slow down investment in real estate markets, and from the latest statistics, it seems to be having this effect in Nanjing at least.

Real estate purchases have been growing as the Chinese populace gravitates to sinking their savings into buying homes, an investment that often appears much safer than playing the stock market, and offers better prospective returns than saving deposits or other money instruments available to Chinese at the moment. This demand had spurred on over-accelerated growth among real estate developers, and also took a considerable toll on the level of consumption attainable by individuals how bought apartments, as their money would be fueled away from consumer goods and into repaying housing loans. As early as May, macro economic controls where set on bank loans for individuals buying housing, forcing prospective home-buyers to pay a down payment of 30% on most new apartments and 40% on second-hand apartments. Now, a hike in interest rates means buying a new house or apartment is even more expensive, as loan payments have increased. This in turn has further driven down demand in the real estate sector.

During the last week of October, 8 new apartment complexes came onto the market, and a total of 30 new apartment complexes will come onto the market in November as well. However, sales seem to be dropping. One real estate development company saw less than 10 apartments sold after that company held their apartments off the market for over a month waiting for higher prices, less than 10 apartments sold in one day is a dramatic shift from the sales situation of barely half a year ago, where more than half of the apartments in a new complex that came onto the market could easily be reserved in one or two days. With an oversupply of apartment complexes materializing, and less incentives to buy apartments, the recent hike in interest rates will likely entice real estate developers to put the breaks on their over-enthusiastic growth. Also, a simultaneous rise of the ceiling on lending rates will allow banks to charge up to 14% per annum on loans to real estate developers, thus allowing banks a greater breadth in which to judge the risk to return on investment ratio, as well as a way to cut down to size the prospects for return on investment for real estate developers.

So will the rise in interest rates result in lower real estate prices? One real estate developer noted that at present the cost of construction of apartments is indeed very high because of the high cost of land and building materials as well as the demands for high-quality and aesthetically pleasing architecture and landscaping among potential buyers. He believes that Nanjing's real estate prices will not see a drop anytime soon, but in the long run prices will reflect the general trends of city construction. Professor Gao Bo of Nanjing University further elaborates on this view, noting that "because various procedures have not yet become viable, the adjustment of real estate prices will take some time, and Nanjing's current prices will continue to be maintained at about where they are at now for another 1 to 2 years."

However, he also points out that this first rise in interest rates points to the likelihood of a 2nd and 3rd hike in rates by the central bank, which could put a lot of pressure on developers to drop prices to offset the increased costs of taking out house loans. The consensus among experts is that at the end of the day the increase in interest rates only has a small effect on the real estate market at present, but in the long run it will help to change Nanjing's real estate market from a sellers market to a buyers market, and avert developers from constructing a plethora of top of the notch apartment complexes that the Chinese market cannot yet absorb.