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Chinese attempts to boost property sector showing signs of working

So far it has reduced transaction fees and interest rates, tried to increase the flow of mortgage finance and shortened the lock-up period during which property owners are subject to tax if they re-sell.

The problem is that it wants to support the real estate market but does not want to encourage speculation. But as the property sector is a vital part of the Chinese economy it has to do as much as it can to limit the negative impact.

'There is limited room for further cuts,' said Qin Hong, deputy head of research at the ministry of Housing. 'Our policy is to continue to restrict investment and speculation in the property market while encouraging purchases for self-use,' he confirmed.

He also confirmed that the ministry plans to spend $132 billion in the next three years to build affordable housing.

According to analysts this cautious approach is working. 'In recent weeks, there have been signs that property price reductions, aggressive interest rate cuts and preferential mortgage policies are beginning to lure buyers back in some key markets,' said Jing Ulrich, head of China equities at JP Morgan.

The real estate market in China will pick up as early at the third or fourth quarter of 2009 according to Rong Ren, chief executive officer of Harvest Capital Partners, a private equity firm focusing on the property sector in China.

For the commercial property sector it is expected that the introduction of Reits will help boost activity. They are to be launched in 2009 but no details have been made public. 'The Reit is likely to be more popular for office, commercial and industrial properties than residential properties, given the relatively higher yields of the former in China,' said Hingyin Lee, director of research and advisory at Colliers in Shanghai.