More regulation possible as house prices rise

A housing project in Nanning attracted almost 1,000 people rushing to buy 100 homes even though the city's house prices have been rising over the last two months.

Nanning, capital of south China's Guangxi Zhuang Autonomous Region, is not the only second-tier city that is witnessing rising house prices. The recovery of the property market is spreading from first-tier cities like Beijing and Shanghai to the less-developed second and third-tier cities.

According to statistics published by the National Bureau of Statistics (NBS), prices of new homes in 50 out of 70 cities increased in July from June. This compares to 25 in June from May and five in May from April.

The prices of second-hand houses have been rising at an even faster rate than new ones.

The Tiantongyuan community in Beijing has been famous for low house prices but the cost of housing has surged by 10 percent during the past two months.

Government measures, implemented in 2010 to bring house prices down, have included restrictions on home purchases in several cities, higher down payments and property taxes.

The measures have shown preliminary results. However, sales volumes and prices for homes in some cities have started to climb.

Analysts believe that many factors have caused prices to go up. Zhu Zhongyi, vice president of the China Real Estate Association, said: "Property giants like Vanke and Evergrande took the lead in lowering prices, which encouraged many companies to boost their own sales by providing discounts."

The property market also got a boost from the central bank, which cut the benchmark interest rate twice in June and July, respectively, to buoy the slowing economy, Zhu said.

Zhou Weijun, executive vice president of real estate giant Vanke, said demand as well as eased loan restrictions for first-time buyers, were the main causes for the spike in prices.

Experts said price rises were also caused by the local governments' loosening of the central government's tightening measures during implementation. The lowering of land transfer fees brought about by the controls has greatly reduced the revenue of local governments.

Many local administrations have made some readjustments to price control policies, such as reducing contract tax and raising the housing provident funds.

PROSPECT

Many suspect the upturn in house prices may lead to the rolling out of stricter curbs on the sector from central government.

More than half of the 49 property companies listed in the Shanghai and Shenzhen stock market have seen their profits fall by the end of July.

Tan Weimin, vice president of Xincheng Holdings, said: "Many property enterprises dare not to put up the prices, fearing to incur a new round of control."

Gu Yunchang, deputy head of China Real Estate and Housing Research Association, said the property sector has been witnessing increasing complexity and instability in market operations, and that property curbs are still an arduous task for government.

In July, the cabinet sent eight teams to inspect the implementation of property regulation policies by local authorities. The teams went to 16 cities and provinces, to assess how well central government's housing purchase limit policies and differential credit policy have been carried out. They also checked the supply and management of residential land and the implementation of tax policies.

The inspectors have recommended rectification measures to local governments. Some problems have already been solved and others are being addressed, according to a statement showing the results.

The inspection indicated central government's determination to cool the property market, and that central authorities will improve regulation on the basis of the results.

Analysts and industry insiders have said that new price-control measures may soon hit China's property market, and it is widely expected that new proposals will be unveiled before September or October -- the country's traditional peak season for home sales.

Some experts believe that if the country can ensure a strict implementation of the current curbing measures, then home prices will not see a substantial rebound in the future. They argue there is a comparatively sufficient supply of houses in the market and the speculative investment takes only a small percentage of the housing need.