China to Firmly Curb Excessive Rise of Housing Prices in Cities

The pledge came after a raft of measures the central government put in place since 2010 to stabilize the runaway market. China's housing prices have been climbing steeply since June 2009, fueled by record bank lending and tax breaks. The monthly year-on-year growth rate hit a record 12.8 percent in April last year.

The soaring prices have spurred rising complaints from ordinary Chinese as well as fears of a property bubble, which prompted the government to tighten grips on the market.

So far, the government measures, mainly targeting at curbing speculation which is to blame as one of the major reasons for pushing up prices, include higher down payments and mortgage rates and purchase limits.

In a tougher move, China kicked off the long-awaited trial property tax in Shanghai and Chongqing in January this year. The pilot taxation is expected to expand nationwide, according to a report from the National Development and Reform Commission.

Jia Kang, senior official with the Ministry of Finance, said although the property tax could hardly reverse the rising trend of housing prices amid rapid urbanization in China, it is able to frustrate speculation and squeeze bubbles.

Moreover, more than 20 cities had imposed caps on the number of apartments a family can buy as of the end of February, another step to discourage speculative and investment purchases.

However, the market seems to defy the so-called "the toughest" action in history and sees no clear sign of falling in prices in major cities.

Government data showed last month that prices of new properties in 68 of 70 major cities surveyed grew from a year earlier in January, with 10 cities reporting double-digit increases in new home prices.

"Purchase limits as an administrative intervention is necessary as the soaring home prices have hurt the economic health," said Liao Yingmin, researcher with the Development Research Center of the State Council.

In China, a country with a huge demand of housing amid fast urbanization and limited land, administrative restrictions would affect demand and supply, and eventually prices, Liao explained.

However, analysts see the method as a short-term remedy, and the real cure is to set up a long-term mechanism, including legislation and market reform.

The government will scrap the purchase limits one day, but it helps buy time for the government to establish a long-term mechanism, Liao said.

Dong Pan, property expert with the Beijing Normal University, said long-term mechanism means total overhaul of local government's reliance on land transfer for fiscal revenue and the property taxation system, in addition to increasing affordable housing.

Wen Jiabao said in an online chat on Feb. 27 that the government will use economic,legal and administrative methods, if necessary, to restrict speculation.

He said he is confident that the measures will eventually pay off.