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Property tightening measures to spread to smaller cities

(China Daily)

09:58, August 18, 2011


(File Photo)

BEIJING, Aug. 18 (Xinhuanet) – Central authorities have ordered provincial governments to report their progress in curbing rising property prices and prepare a list of cities where home-purchasing restrictions will be imposed, a Shanghai Securities News report said on Wednesday.

Analysts said the new round of home-purchasing restrictions targeting second- and third-tier cities might help in curbing rising property prices in first-tier cities.

The Ministry of Housing and Urban-Rural Development has established five guidelines to help local governments evaluate which cities should have restrictions applied.

The Shanghai Securities News report said cities that meet two of the five criteria may face restrictions and people are speculating that the policy may soon expand to second- and third-tier cities.

Currently, some 40 cities in China have had home-purchasing restrictions applied and industry experts said at least 30 cities might be affected by the new policy.

Figures from the National Bureau of Statistics suggested that cities without purchasing restrictions have higher growth in property prices than cities with enforced curbing measures.

In June, property prices rose by 3.85 percent year-on-year on average in Beijing, Shanghai, Guangzhou and Shenzhen, while prices increased by 4.66 percent in 31 cities without the enforcement.

"Currently, as a result of the restrictions in large cities, property investors with sufficient capital are rushing into second- and third-tier cities and pushing up the property trading prices," said Yin Xufei, a real estate industry analyst with China Investment Consulting Research Center.

Industry experts pointed out that the price increase in smaller cities has become the main cause of rising property prices in large cities, since developers use the revenue generated from smaller cities to support projects in large cities such as Shanghai.

"Some property developers may experience funding shortages if restrictions are applied in second- and third-tier cities, which might help the government to stabilize housing prices," said Lu Qilin, research director at Shanghai Deovolente Realty Co.

However, analysts also said the restriction might face local opposition because it will reduce local government revenues from land sales.

Meanwhile, analysts are concerned that the restrictions may result in a big rebound in property prices if the policies are loosened later.

"Restrictions on residential property purchasing can have some short-term effect. However, it cannot solve the problem completely," Yin said. "The government needs to invest more in affordable housing projects to meet demand."

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