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China Stresses Real Estate Curbs to Control Rocketing Property Prices

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By Prasanth Aby Thomas | February 21, 2013 4:50 PM EST

The Coronation, newly built luxurious residential flats, near the future terminal of high-speed train linking up to Beijing, in West Kowloon.

The Chinese government has asked regional authorities to take up stringent measures to limit property speculation and control the sector in a bid to ease the country's rocketing real estate prices.

According to an official statement released after the State Council meeting headed by Premier Wen Jiabao, cities that have seen extreme price rises need to urgently impose home-buying restrictions if they haven't done so already. Regional administrations that report directly to the central government have also been asked to release annual price-control goals and maintain stability in new-home prices.

Property sector is a major driver of economic growth in the world's second largest economy, directly contributing to over 10 percent of the gross domestic product (GDP). After a brief slowdown in the previous year, the sector has rebounded sharply, reflecting China's economic recovery.

According to the country's biggest real estate website SouFun Holdings prices of new homes added 1 percent over the previous month in January, the highest gain in about two years and the eighth straight month of increase.

Increasing housing demand is crucial to China as the country looks to steady its recovery from the 7.8 percent annual growth in the previous year. But the rising prices had sparked concerns, as the sector-recovery appeared faster than expected for many, prompting the authorities to take action.  In a separate report released this week, the ratings agency Standard &Poor's has forecasted house prices to rise as much as 5 percent this year.

Financial markets were concerned that the government may look to impose fresh restrictions on the sector. Property stocks on mainland China's Shanghai Composite Index had come under pressure this week weighing the Shanghai benchmark index down.  

But the government refrained from imposing fresh curbs, sticking to the implementation of its current restrictions.

China economists at Bank of America Merrill Lynch point out that although financial markets can be relieved that the government did not come up with new laws, leaders could be "seriously concerned about rapidly rising home prices, they will step up enforcement of existing measures, and it's likely they will introduce new measures contingent on the future pace of home price increases".  

But analysts do not expect the government to come up with drastic measures to rein in the costs as it would prove detrimental to the economy. They point out that the issues of under-supply are mostly limited to high -tier cities such as Beijing and hence the government could seek region-selective measures rather than country-wide legislations.

Soaring property prices are a major concern in Hong Kong also, where new home prices have hit record highs despite the government curbs that were put in place three months ago. Officials are repeatedly stressed that failure to control the sector would hurt Asia's financial hub, which is seeing an increased demand despite the costs.  

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