Rise in Prices Leads Chinese Government to Curb Home Purchases

According to a survey conducted by the National Bureau of Statistics (NBS), average home prices in China rose the highest in January 2013 compared to the figures of the same period in 2012. This is leading the Chinese regulators to tighten real estate speculations in the country.

The survey studied property prices across 70 major cities in China, which revealed that home prices in 53 cities had shot up 2.2 percent in January 2012 from a month earlier. On a month-on-month basis, new property prices recorded the highest hike in the city of Shenzhen at 2.2 percent. Beijing, Guangzhou and Shanghai witnessed the next largest hikes at 2.1, 2.0 and 1.3 percent, respectively.

The survey also stated that growth rate in 53 cities went up to 4.7 percent on a year-on-year basis.

The real estate market of china is heating up. In the last few decades, China had loosened property purchase laws enabling the citizens to invest in the sector. However, with the escalating pace in home prices, the government has introduced stricter regulations in the last three years to avoid a housing crisis.

The regulations include tougher mortgage qualification requirements, higher down payments and more recently, caps on property purchases. More such policies are on the anvil in the following few months.

However, some analysts stated that the policies were not strong enough to curb the emerging real estate tip-over.

"If there's no tough policies such as suspending second mortgages or raising taxes on existing-home transactions, with tightness in the near-term demand and supply unchanged the trend of rising home prices can hardly change," Luo Yu, analyst at CEBM, a Shanghai based advisory company, wrote in an email to Businessweek.

In the wake of a housing bubble, shares of Chinese developers also fell to post the largest drop in three weeks. The drop comes after the government imposed curbs on new home purchases through tightening measures like increasing property taxes and prescribing targets to control home prices.

Controlling the property boom has become a major challenge for the government. Any decision must now be taken with utmost care.

Join the Discussion
Real Time Analytics