Government vows firm stance on cooling the property market

China's new-home prices exhibited their biggest gain last month since June 2011, according to a report released on Wednesday by Soufun.com, a real estate website.

Responding to the news, many experts said the increases are likely to continue in the coming months but proceed at a slower pace.

Potential homebuyers learn about a real estate project in Qingdao, Shandong province. New-home prices rose 0.3 percent in July in 100 cities to an average of 8,717 yuan ($1,370) per square meter, according to a report. [Photo/China Daily]

The prices of new homes increased by 0.3 percent from June to July, rising to 8,717 yuan ($1,370) for each square meter of space. The month before, the increase rate had been 0.05 percent.

The increase in June ended consecutive drops seen in the nine previous months. Those decreases were the result of policies adopted by the central government to control the real estate market, including a restriction that prevented people from buying more than one house.

Of the 100 cities SouFun looked at, the home prices in 70 were up from the month before. In 10 large cities, the prices of new homes registered a slightly milder increase of 0.27 percent.

Prices in Chongqing showed an increase of 1.57 percent, and those in Beijing and Shanghai saw a 0.03 percent increase.

"It is very clear that China's property market is coming back," Vincent Mo, chairman of SouFun, was quoted by Bloomberg Television as saying. The back-to-back monthly increases "showed a turning point in China's property prices", he said.

Not everyone thinks the trend will last. Hu Jinghui, vice-president of the housing agent 5i5j Real Estate Agent Co Ltd, said the value of housing transactions could tumble in the second half of the third quarter. He said the boom in sales may have met the genuine demand for housing that had existed, adding that the current sales momentum will be difficult to sustain.

But Gu Yunchang, vice-president of the China Real Estate Association, said a large amount of unsatisfied demand still exists.

"Property markets in China vary from place to place," Gu said. "Sales in large cities heat up quickly and then cool off just as quickly. But even as markets cool in large cities, the void that creates will quickly be filled by sales in medium-sized and small cities, which respond slower to market changes."

The increase in prices, as well as faster sales, have alarmed the central government, which fears some of its recent macroeconomic easing may have given markets the wrong message.

To spur China's economy, the central bank cut the country's interest rates twice in a month. Meanwhile, various local governments have adopted "fine-tuning" policies, decisions that have also given rise to speculation that property markets will soon be subjected to looser rules.

Central authorities have responded to the speculation with repeated pledges to keep the government's property policies firmly in place. Late last month, the State Council sent eight teams to 16 municipalities and provinces to determine how well the policies are being enforced.

"The government will prevent housing prices from rebounding, increase the supply of affordable residential houses and put more toward the construction of low-price houses," according to an official announcement released after a meeting on Tuesday chaired by President Hu Jintao.

Gu said the chances are slim that property prices will increase rapidly in the second half of the year, especially since the government's property policies continue to be in place and a large number of houses remain unsold.

"I think this mild price increase is acceptable to the central government," Gu said.