Cooled property market testing govt regulation

SHANGHAI - Declining enthusiasm for home purchases is testing Chinese local authorities' faith in measures introduced to control the property market as many loosen these curbs in the face of continued downward pressure.

Of all the Chinese cities that instigated measures like higher down payments and second-home restrictions to cool the market in a period when it was red-hot, more than 30, or 60 percent, have undone or loosened them.

With home sales slowing, rising inventories and a drop in property investment by developers have become big headaches for local governments.

10 Chinese cities that lifted property curbs in July

Triple dip for housing prices in July

Fifty-five of an official sample of 70 Chinese cities saw home prices drop month on month in June, the most in 30 months. Even home prices in first-tier cities such as Shanghai and Guangzhou have not held up.

The loosening comes in various forms. Some cities have openly removed previous curbs, others have kept them but provided compensatory incentives such as tax breaks for buyers.

Hangzhou, the provincial capital of East China's Zhejiang province, has removed restrictions on home purchases in the city's suburbs and those in downtown areas if the floor area exceeds 140 square meters. Such targeted easing measures are also in place in other second-tier cities.

Some have made the move without actually promoting it. Property developers have received verbal go-ahead from local authorities to sell homes to buyers who would previously have been locked out.

The government of Changzhou in Jiangsu province even took to printing a front-page article in its mouthpiece local newspaper titled "Now is the best time to buy a home in the city." The article harried readers over the fact that sales traditionally surge in September and October.

The question, it seems, is not whether more cities will loosen property curbs, but how far they will go in doing so.

During a forum in Shanghai over the weekend, Goldman Sachs economist Ha Jiming said such loosening provides, at best, temporary relief for the property sector and expressed doubt that it could reverse the trend.

"Such curbs have proved ineffective in reining in property prices and removing them won't necessarily shore up prices either, " Ha said. "In overall terms, home supply has exceeded demand and this is particularly so in small cities. There is an inconsistency between policy guidance and the market dynamics."

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