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Property analysts predict more cooling measures in China as prices keep rising

New home prices in the capital Beijing rose 4.9% in March from a year earlier, easing from a the 6.8% increase in February. While in Shanghai, the country’s financial hub, prices climbed 1.7% last month, down from 2.3% in February.
Of the 70 cities monitored by the government, 67 cities posted gains, down from 68 in the first two months, the data showed. The government said its real estate cooling measures are working.
About 40 cities said last month they will cap new property prices below annual economic and disposable per-capita income growth or keep them steady following the central government’s measures to rein in housing values.
China also said it will raise banks’ reserve requirements from tomorrow (April 21) to cool inflation, and central bank Governor Zhou Xiaochuan said monetary tightening will continue for ‘some time’.
‘The turning point for home prices is getting closer and closer. The government is sending a strong signal to further tighten the liquidity and continue to control home prices,’ said Shen Jian-guang, a Hong Kong-based economist at Mizuho Securities Asia.

Chinese Premier Wen Jiabao said last week in a cabinet meeting that the country faces challenges including rising property prices in many cities even as real estate transactions shrink. The government also raised the minimum down payment for second home purchases this year and levied taxes on residences in Shanghai and Chongqing. Beijing and Guangzhou imposed restrictions on housing purchases in February, while the central bank has already raised interest rates twice this year.
The figures also shows that property prices in Sanya on southern Hainan island fell the most by 0.6% last month from a year earlier. Nanchong in the western Sichuan province saw a 0.5% decline, while prices in Quanzhou in the country’s southeast were unchanged.

On a month on month basis prices in Beijing were unchanged from February to March. In Shanghai, they increased 0.2% in March, down from a 0.9% increase in February. Of the 70 cities, 12 posted price declines in March from February, when only eight cities reported a drop in housing values, according to the data.
Existing home prices in Beijing fell 0.1% from February, while those in Shanghai increased 0.4%.
 It’s a clear sign that the market is cooling, according to Sun Mingchun, chief economist at Daiwa Securities Capital Markets in Hong Kong, as the month on month data is more reflective of market trends. ‘Once we get higher bases and further price declines in the coming months, we should see year on year price changes turning negative in more and more cities,’ he explained.

But property investment is still robust and according to Shen Minggao, head of China research at Citigroup, it is too early to draw a conclusion on whether the government curbs are having an effect.
The International Monetary Authority said earlier this month that rapid credit growth has created ‘mounting concerns about the potential for steep corrections in property prices’ in China.
A separate report from SouFun Holdings, the operator of China’s biggest real estate website, shows that property prices rose 0.6% in March.

Some analysts are now predicting that further price corrections will be necessary in the country’s real estate market.