Property gloom continues as hopes for easing doused

The city of Beijing greeted the one-year anniversary of the implementation of home purchase restrictions with plummeting property prices and sagging sales on Thursday, which analysts believe may extend into the third quarter, as the central government has dashed hopes for policy-easing.

New home sales in Beijing shrank 21.4 percent from a year earlier, while sales of existing homes plunged by a more remarkable 52.9 percent as a result of the home purchase limits, according to the Beijing Municipal Commission of Housing and Urban-Rural Development.

Despite slackening home sales and a 20-percent fall in new home prices from a year earlier, Beijing's municipal housing regulator said last Thursday that it will maintain tightening measures for the property market until prices fall back down to "reasonable levels."

The move may prove to be a wise decision in light of the troubles of Wuhu, a mid-sized city in east China's Anhui province. The city introduced relaxed property controls last Thursday, only to reverse the decision on Sunday.

Wuhu said it has suspended the new measures, which include subsidizing home purchases and waiving a deed tax, in order to "refine details," although Internet users have complained that the city is bowing to pressure from the central government.

China will work unwaveringly to bring housing prices to "reasonable levels" so as to ensure fairness and stability, Premier Wen Jiabao said last week, ruling out loosening the government's control over the real estate sector.

"Wuhu tried to shed its tightening policies, but was intercepted by the central government. Consequently, realty shares dipped," wrote Pan Shiyi, a real estate magnate, on his profile on Sina Weibo, a popular Chinese microblogging site.

Others have seen an explicit indication of the central government's resolution to clamp down on property prices.

"Wuhu's about-face shows that there will not be significant easing until the middle of the year," said Yang Hongxu, a senior analyst with the Shanghai-based E-house China Research Development Institute.

Wuhu is not the only city to encounter difficulties in buoying its sagging real estate market. Last October, the southern Chinese city of Foshan revoked a policy that would allow purchases of additional homes just 12 hours after announcing the policy.

A further price correction is around the corner, as local governments' bailout attempts have been aborted, analysts said.

"For developers who run short of capital, they should cut their prices as soon as possible. A wave of price cuts occurred in a batch of firms between last October and November. There will soon be a second round," Yang said.

First-tier cities like Beijing will see further price falls in 2012, with average decreases ranging from 10 to 15 percent, said Fan Xiaochong, vice president of the Sunshine 100 Real Estate Group.

But Internet users are still worried that local governments will implement their own agendas while rescuing the property sector, as the industry is an important source of revenue for many local governments.

"That is what happened in 2008," Jiang Debing, an industry commentator, wrote on his microblog. "Local governments, heavily reliant on revenue from land sales, are desperate to spur the sluggish market to fill up their shrinking wallets."

Land sales typically account for about 40 percent of local government revenues. In extreme cases, the ratio may reach as high as 60 percent.

After the home purchase restrictions took effect, Beijing's revenues from land sales, despite taking a 32-percent drop, managed to hit 105.4 billion yuan (16.73 billion U.S. dollars), about one-third of the city's revenue last year.

"Local governments will not shelve their easing policies. They may not dare to defy the central government's tightening orders in written form, but they may still do it in practice," Yang said.

Local governments should not attempt to make adjustments to the central government's tightening policies, Wang Juelin, vice director of the Ministry of Housing and Urban-Rural Development's policy research center, said in a Monday interview with Dow Jones.