China new home prices rise in February

Buyers looking at a model of a new home development in China China has been trying to control speculation in its real estate sector

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New home prices rose in 66 of China's 70 major cities in February, underlining the challenge its new leaders face in controlling the sector.

Keeping property prices in check has been a key agenda for Beijing, not least due to fears of asset bubbles.

Earlier this month, China unveiled fresh measures, including higher down payment requirements, to try and curb speculation in the sector.

However, there are fears that excessive tightening may hurt economic growth.

"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," said Shaun Rein managing director at China Market Research Group.

"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."

New home prices in Beijing in February rose 5.9%, from a year earlier, while they advanced 8.1% in Guangzhou and 3.4% in Shanghai.

Cooling measures

China has been trying to battle rising property prices for the best part of the past two-and-a-half years.

Start Quote

"Price rises will ease, but will not head south”

End Quote Jianguang Shen Mizuho Securities Asia

Fears of formation of asset bubbles prompted the government to introduce various measures aimed at curbing speculation in the sector in 2010.

While those measures did help to bring down prices, they were followed by a slowdown in China's economic growth.

In an attempt to sustain its economic growth, China eased some of its monetary policies last year. This included two interest rate cuts and lowering the amount of of money that banks need to keep in reserve in a bid to boost lending.

However, the moves also saw property prices in China starting to rise again. As a result, China announced a fresh set of measures on 1 March this year to try to keep prices in check.

The new measures include higher mortgage rates for second-time buyers in cities where prices are rising too fast.

The government also said it will impose a 20% capital gain tax on profit made from home sales.

Analysts said the measures were likely to result in a slowdown in price growth in the coming months.

"Price rises will ease, but will not head south," said Jianguang Shen, chief China economist with Mizuho Securities Asia.

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