Restraining home price rise won't be easy

A majority of China's local governments probably failed to meet their targets for home price growth for 2013, and a more reasonable mechanism is needed, industry experts said.

At the start of 2013, almost all of major cities set price growth targets, following the requirement from the State Council, the cabinet, to cool down the real estate market.

Beijing and Shanghai promised to keep property prices at a "stable" level. Others, such as Guangzhou and Shenzhen, said the growth rate should be lower than that of urban residents' average real disposable income, which is usually under 10 percent.

But the results may be disappointing. According to the National Bureau of Statistics, the year-on-year growth rate in the country's key cities, including Beijing, Shanghai, Shenzhen and Guangzhou, exceeded 20 percent for the past three months. And those in major provincial capitals are expected to exceed 10 percent for the year.

Li Guozhen, a researcher at the China Index Academy, said making local governments accountable for their failure to meet the targets could be difficult. Potential homebuyers may lose confidence in their governments, and the authority of the policy also could be challenged.

Strong demand from first-home buyers, a bullish land market and a stable credit environment all fueled the skyrocketing prices.

Qin Hong, director of the policy research center at the Ministry of Housing and Urban-Rural Development, said the record sales of 2013 were supported by the baby boom generation, born in the 1980s.

About one-third of homebuyers in 2013 were in the 19-to-29-year-old age bracket, according to real estate agency Century 21. The ratio, the company said, rose from 19.9 percent in 2011 to 31.9 percent in 2013.

"Strong demand from that group, together with a stable credit environment in 2013, resulted in a bullish property market last year," said Kou Hailong, general manager of Century 21 Beijing.

A red-hot land market strengthened buyers' expectations of a further price hike.

Beijing, for instance, saw the value of land sales rising 181.2 percent year-on-year in 2013 to 182.2 billion yuan ($29.4 billion), according to Century 21.

Sales of land for residential buildings soared 240 percent year-on-year to 127.8 billion yuan, with the average price of floor space rising 48.7 percent to 11,102 yuan per square meter, the report said.

Moreover, as more developers returned to first-tier cities to vie for land deals, their competition also buoyed prices.

The soaring land prices also had an obvious impact on expectations of homebuyers and developers, Kou said.

To contain the price hike, first-tier and even some second-tier cities where house prices have quickly risen introduced tightening measures, but they mainly focused on home purchasing and mortgage lending, such as increasing the down payment requirement from 60 percent to 70 percent for second-home mortgages.

Zhu Haibin, chief China economist at JPMorgan Chase & Co, said these measures have been in place for several years and that their marginal impact was limited.

Setting a target for home price growth is a short-term behavior, which may not continue into this year, according to Zhang Dawei, director of Centaline Property's research center.

If the existing fiscal and taxation schemes remain unchanged, and land sales continue to be a key source of revenue for local governments, it will be hard to contain the prices, Zhang said.

But as more affordable housing enters the market in 2014, and home purchase restrictions continue, price growth and transaction values will fall below those of 2013, Kou predicted.