The author Zhang Qi is deputy director of the Institute of Economic and Resource Management, Beijing Normal University

Despite cooling measures, in the year's first quarter real estate investment increased 26.9 percent year-on-year, while housing prices continuously rose, although by smaller margins.

There are a number of factors contributing to this.

First, rapid economic growth created a favorable climate for increased real estate investment.

Second, large amounts of capital entered the real estate market because of the favorable macroeconomic climate and positive economic results enjoyed by enterprises. This drove up land property investment.

Third, the wait-and-see attitude of the local governments poses a stumbling block to the implementation of the central government's macroeconomic readjustment policy.

For example, some local governments are foot dragging in carrying out the central government's policy that small-area apartments (90 square meters or less) make up 80 percent of the total.

Furthermore, some local governments prefer to do nothing to reign in runaway housing prices in the absence of administrative pressure from above. This is because rises in real estate prices mean increases in local revenue.

Fourth, construction of low-price housing trails demand so low-rent apartments are short of supply.

Fifth, speculation in the real estate sector goes largely unchecked. Among other factors, this explains much of why housing prices could not significantly decrease.

Interest rates and bank reserve ratios have been raised steadily over the last couple of years to increase the costs of real estate investment and speculation to a certain extent. However, these cost increases pale beside the fat profits reaped from the housing price hike.

In fact, it is investment and speculation that power the rise of housing prices. So, rooting out speculative activities in the real estate market provides the right prescription for controlling runaway prices.

The increase in real estate markets in the second quarter will fluctuate between 24 percent and 26 percent, by my estimate. The growth usually slows in the second quarter of a year.

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