New Home prices in China have posted significant and continuous growth since December 2011. Prices increased by 2.1 percent in Feb, 2013 from a year earlier while posting a 1.1 percent increase from January. The continuing trend is posing a major challenge for the government to avoid an asset bubble.
According to the National Bureau of Statistics, of the 70 cities tracked by the government, prices soared in 66 cities. Homes in Guangzhou posted the highest percentage increase since January 2011 with an 8.1 percent hike while prices in Beijing jumped 5.9 percent, which was the largest since February 2011. Prices were up 3.4 percent in Shanghai.
The rising home prices and a resultant asset bubble has become a great source of worry for the Chinese government. The officials are in a fix as avoiding a housing bust without depressing the economy is of major importance now.
"The government is in a really difficult situation. It needs to keep the housing prices in check to keep them affordable for the average Chinese. But at the same time Beijing can't afford a sharp decline in the real estate and construction sectors which have been key drivers of its growth," Shaun Rein, managing director at China Market Research Group, said to the Financial Channel.
The Chinese government has already issued a number of restricting and controlling laws regarding the asset bubble for a while now. Recently, the administration declared a stringent capital gains tax law on home sales. A 20 percent capital gains tax was declared on used home sales. Early in March, 2013, the central government also increased the mortgage interest rates and the down payments on home purchases, reports Global Tax News.
"We are expecting more property policies in the next couple of months including those issued by local governments, because the fast-rising home prices have put the government under a lot of pressure. It's not only a big challenge for the new administration, but also shows that previous curbs have not worked," Ding Shuang, a senior China economist with Honk Kong's Citigroup Inc., said to Bloomberg.
Analysts believe that the new policies might slow down the housing inflation. It will take at least another three to six months for the price fire to douse down. Experts also hope that the new policies will be able to control the price rises, reports BBC.
