Jun 26, 2012 03:59 PM

Gov't Faces Questions over Housing Market Curbs


(Beijing) – In the face of a weak economic outlook and local governments' attempts to revive property markets, the central government is facing questions over whether to ease its curbs on the real estate sector.

Over the past month, three central government agencies – the National Development and Reform Commission, the Ministry of Housing and Urban-Rural Development, and the China Banking Regulatory Commission – have reiterated that policies in effect since April 2010 to cool the property market would remain unchanged.

However, in practice, many local governments have started loosening controls, and since April market expectations for the real estate industry have changed. Prices in big cities like Beijing, Shanghai and Guangzhou have started to rise again.

In May, average housing prices in Beijing ended a declining trend, the National Statistics Bureau said, while other cities, including Shanghai, Guangzhou, Shenzhen and Qingdao, have reported slower declines.

Meanwhile, the land market rebounded in June as a number of major property developers competed to buy plots at a high premium. On June 18, Evergrande Real Estate Group Ltd. paid 1.32 billion yuan for a site in Guangzhou, setting a new national record for a land transaction.

Caixin found that since the beginning of June seven major developers have paid a total of 7.3 billion yuan for land purchases, with the highest premium, or percentage above the initial auction price, reaching 169.7 percent.

Some 20.4 percent of respondents to a central bank survey expected housing prices to rise in the third quarter, 2.8 percentage points higher than the figure for the second quarter.

Also, there were 3,311 deals involving new apartments in Beijing between June 18 and 24, up 32 percent from the previous week and 35.5 percent from the same week last year, the Beijing Municipal Commission of Housing and Urban-Rural Development reported.

Local governments have released rules to boost markets, and the central government has acquiesced. For instance, Henan Province encouraged banks to offer a 30 percent discount on mortgage rates for first-time home buyers. And Yangzhou, Jiangsu Province, promised subsidies for qualified buyers.

Ha Jiming, Goldman Sachs vice chairman for China, said that if the external trade environment continued to worsen, the government would likely ease its curbs on the property market.

But Chen Changhua, head of the China Research Department at Credit Suisse, warned that Beijing's tolerance of local authorities' loosening of control would boost the economy in the short term, but create bigger problems in the future. He said the government should continue its efforts to restrain the housing market and push forward with structural reform of the economy.

Northeast Securities, a major Chinese securities firm, said that if the macro economy maintained steady growth in the third quarter, the government would have more room for policy adjustment. Then, if housing prices continued to rise, it might adopt tightening measures, such as a property tax.

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