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Reflect on home prices

China Daily | Updated: 2013-04-19 07:13

The strong rise in house prices in March is not surprising as the latest price control measures prompted buyers to buy rather than wait.

Property prices rose in 68 of 70 major Chinese cities in March, up from 66 in February, according to the National Bureau of Statistics. But the higher house prices in March are obviously a result of a temporarily distorted market, as buyers and sellers look to act before the latest government real estate measures come into effect.

The central government said on March 1 that it is planning to introduce a 20 percent windfall tax on property sold within five years of its purchase if the seller has more than one property. It also announced it will raise the down payment requirements and mortgage rates for buyers that already own property, with Beijing already taking the lead in implementing the hikes.

As many localities have put new price control measures in place from the start of this month, there are high hopes that house prices may stabilize in April.

But while the growth of property investment and sales cooled in March from the levels seen in the first two months, it would be premature to conclude that the latest measures will soon take the heat out of the market.

It will take some time for the cooling investment and sales to have a substantial effect on the movement of home prices.

The message from the State Council executive meeting on Wednesday was that preventing financial risks is regarded as a priority for the government. The message has been widely interpreted as a sign that monetary tightening is in the pipeline. If that were the case, the reduced money supply would start to exert downward pressure on the property sector.

However, at present monetary growth remains strong, which will provide a boost for the property sector. In terms of monetary supply, in the first quarter China's new yuan loans amounted to 2.76 trillion yuan ($440 billion), 300 billion yuan more than a year ago. In March alone, such loans reached 1.06 trillion yuan, much higher than market expectations.

The authorities should closely monitor and assess the effects of its house price control measures and decide whether to introduce new ones.

(China Daily 04/19/2013 page8)

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