BEIJING, Dec. 21-- After years of unfruitful tightening, China is poised to correct the imperfections of its control over the domestic housing market, a move that could reset the pace of the overheated sector, according to analysts.

Home prices hit record highs in many cities last month, putting them well beyond the reach of ordinary people despite government attempts to contain price hikes.

"The policy message indicated by authorities recently will bring profound changes to the real estate sector. We expect more targeted reform measures to fix the defects of previous policies," said Chen Guoqiang, deputy head of the China Real Estate Society.

Processes that allow the market to play a major role are expected to be formed to replace administrative measures currently in place.

HOUSING PRICE BOOM

China's property boom, which started following the country's urban housing reform a decade ago, went through a short depression before it was reignited by the government to cope with the financial crisis in 2008. It has since gone on an upward path.

In fear of inflating a real estate bubble, authorities in 2010 started introducing a raft of tightening measures, including third-home purchase bans, higher down payments, property tax trials and massive construction of low-income homes, to cool the red-hot market.

Despite the effort, 69 of 70 major cities monitored by the government reported year on year gains in new home prices last month, with 26 cities logging annual increases of 10 percent or higher, official data showed.

A separate survey by China Real Estate Index System (CREIS) showed average prices in the 100 biggest cities rose 0.68 percent to 10,758 yuan (1,764 U.S. dollars) in November from October, marking gains for the 18th consecutive month.

Excessive liquidity, lack of investment channels, a rapidly urbanizing society and local governments' reliance on land sales have all contributed to the market's prosperity, said Gu Yunchang, deputy head of the China Real Estate and Housing Research Association.

However, price hikes were largely led by gains in metropolises, with the market swinging in the opposite direction in smaller cities.

In expensive first-tier cities like Beijing and Shanghai, home prices continued to grow at a pace of around 20 percent in November year on year. Price declined in more third and fourth tier cities, including Wenzhou, and other smaller cities that were excluded from official monitoring.

Gu said transactions are bullish in first-tier cities because of a persistently strong inflow of population and insufficient land supply, while smaller cities have failed to attract buyers.

MULTIPLE RISKS

Despite the government's firm stance in curbing the market, ordinary Chinese people in most cities are still facing relentlessly rising housing prices. This has added to the risk of a price bubble and social instability as housing becomes increasingly unaffordable.

The average ratio between home price and income, an index indicating the degree to which housing is affordable by the local population, stood at 8.3 to 1 for 35 major Chinese cities in 2012, higher than the world's average level, said a report by Shanghai-based E-house China, a leading real estate service provider.

The ratio reached 13.3 to 1 in Beijing, the report said, which means purchasers need to work at least 13 years to pay for a home. The World Bank considers the ratio of 5 to 1 as affordable, while the United Nations set the standard at 3 to 1.

Housing prices in first-tier cities have far exceeded local residents' purchasing power. Home buyers have to draw on savings of their parents and grandparents, which will increase the income gap, reduce people's spending and cause old-age care problems, said Zhu Zhongyi, deputy head of the China Real Estate Industry Association.

In contrast to red-hot areas, there are inland cities like Erdos and Anshan City in north China, which are dubbed "ghost cities" as residential apartments remain empty.

Lin Bo, an analyst at the Shanghai-based China Real Estate Information Corporation, said housing supply has been accumulating and has reached a peak in many such cities this year. The oversupply has pushed up the risks of a market collapse because of inadequate demand.

Meanwhile, over-crowdedness, traffic jams, pollution and strained school and hospital resources in big cities have also fueled complaints of a worsening urban environment.

BREAK THE DEADLOCK

Central authorities have so far refrained from introducing any nationwide measures since the new leadership took office in March, reflecting a desire to let market forces, rather than administrative actions, control the property market, analysts said.

Last week's central economic work conference, a key meeting setting the agenda for next year's economic work, stressed the need to increase affordable housing and land supply.

A Communist Party of China meeting last month, which outlined a comprehensive reform plan, vowed to push ahead with changes to property tax legislation, more liberal rural land rights and uniformed platforms for housing and credit information.

"These are very smart policies. They didn't say property regulation but many are meant to," said Li Yang, vice president of the Academy of Social Sciences, a government think tank.

"Both reforms at the macroscopic level and for certain industries are expected to affect the sector, or even restructure it," Chen said. "Does the revolution of systematic housing reform start now? My answer is yes."

To cool fast-rising prices, a dozen of local governments including Beijing and Shenzhen have recently tightened their grip, adopting measures such as stricter scrutiny of non-local buyers, most of which, however, remained administrative means.

"The government won't lift its control too quickly. These measures aim to quench upbeat market sentiment. Future policy choices will be market-oriented, with administrative means gradually fading out," Chen said.

The CREIS predict that housing prices will head higher next year due to strong momentum, although gains will be limited thanks to a higher comparison base. Longer term, marketization will help the sector become more rational.

"There is probably a price bubble, not serious though," Li said, adding that an ideal situation will be the government subsidizing the low-end market while removing controls over high-end market.