2011-03-03 14:17

BEIJING - China's hot housing markets seemed to cool slightly in February, when home sales in cities like Beijing and Shanghai dropped dramatically.

Official statistics showed February commercial home sales in Beijing plunged almost 70 percent to a three-year low from January, with only 3,535 housing units changing ownership.

In Shanghai, commercial home sales plunged 84 percent month on month to 165,000 square meters in February, the lowest monthly volume since 2006.

Though sales dropped sharply in most cities in February due to the restrained demand, analysts said it was still too early to say whether the markets were seeing a turning point as prices continued to rise.

Average home prices in 100 cities were up 0.48 percent to 8,686 yuan ($1,321) per square meter in February, according to a report published by the China Index Research Institute Wednesday.

Among those cities, prices continued to increase month on month in 80 cities in February, while slight month-on-month declines were reported in 18 cities and prices remained unchanged in the other two cities.

The sharp falls in new and resold home sales in Beijing and Shanghai came a month after the State Council, China's Cabinet, adopted a new package of policies aimed at curbing housing markets on Jan 26.

The policies included purchase restrictions, property taxes, tighter lending requirements, an interest rate hike and plans to build millions of government-subsidized apartments nationwide.

To add to developers' pressures, most cities banned sales of homes to permanent residents with at least two homes or to non-permanent residents with at least one home in a city.

Aside from purchase limits, the government also vowed to begin building 10 million subsidized affordable apartments nationwide for low-income families this year and 36 million units over the next five years.

Liu Hongyu, director of the Real Estate Research Institute of Tsinghua University, said even with the 3.7 million homes completed in 2010, affordable housing accounted for only 8 percent of China's total supply.

"If the government raises that proportion to 20 percent, it will greatly ease the pressure for further home price hikes," Liu said.

According to China's new housing market policies, local governments in cities where home prices are soaring must set annual "controlled" price targets for new homes by the end of March, based on their economic development targets, disposable income growth and housing affordability.

A few city governments have unveiled price control targets, including Yinchuan, capital of northwest China's Ningxia Hui autonomous region.

In Yinchuan, the increase in new home prices should be below the average growth rate of urban per capita disposable income, or below 10 percent from the previous year.

Xue Jianxiong, an analyst with China Real Estate Information Corp said using the growth rate of gross domestic product and per capita disposable income as the reference for price controls was not a good idea.

"The home price control targets should match the consumer price index," Xue said.

"For example, the highest monthly inflation was 5.1 percent last year, so the home price increase target should be within 5 percent the same year."

The significant drop in home sales will not necessarily translate into declines in prices as many would-be home buyers expect, experts say.

For wealthy families, a home remains the most popular investment as it is considered a safe option with long-term gains above inflation.

Despite a raft of government tightening measures, property prices have remained high since 2009 in the wake of the global financial crisis as large amounts of speculative capital stayed in the property market.

The investment demand from wealthy people for property, however, has dampened as many cities limit home purchases.

To complicate the expectation of falling prices, revenue from land sales remains a major source of local government income in many cities.

Chen Huai, director of the Policy Research Center of the Ministry of Housing and Urban-Rural Construction, said 2011 would be a critical year for macro controls on the property market.

"It's critical for affordable housing to catch up with market demand and for local governments to properly implement the central government's tightening measures," he said.