China’s Yancheng Halts Home Price Limits, People’s Daily Says

China’s eastern city of Yancheng has halted limits on home prices because an increase in supply was putting pressure on prices, the official People’s Daily newspaper reported today.

Yancheng, in Jiangsu province, has suspended the price limit for “a period of time,” the newspaper said, citing an unidentified employee from the city’s housing authority. The city ordered developers in 2009 to register with the government before marketing their home projects and capping sale prices below the registered price.

China’s former Premier Wen Jiabao in March stepped up a three-year campaign to cool home prices, ordering the central bank to raise down-payment requirements for second mortgages in cities with excessive cost gains and telling local governments with the biggest price pressures to tighten home-purchase limits and set price-control targets. Beijing issued the toughest measures among 35 provincial cities, raising the minimum down payment on second homes and enforcing a 20 percent capital-gains tax on existing homes.

“Smaller cities like Yancheng probably face bigger risks of prices falling as demand couldn’t keep up with the construction boom,” Dai Fang, a Shanghai-based property analyst at Zheshang Securities Co., said in a phone interview.

Two phone calls to Yancheng’s housing bureau went unanswered.

Smaller Cities

The Shanghai Stock Exchange Property Index, which tracks 24 developers, rose 2.6 percent as of 11:13 a.m., compared with a 1.7 percent gain in the benchmark.

Home prices in Yancheng fell 0.6 percent in June from a month earlier, the 11th biggest drop among 100 cities tracked by SouFun Holdings Ltd. (SFUN), the country’s largest real estate website owner. Yancheng is not among the 70 cities the bureau of statistics tracks because it is too small and SouFun only included Yancheng on its list this year.

“The city is too small to show whether the government has allowed easing of property curbs,” Lin Bo, a Shanghai-based property analyst at China Real Estate Information Corp., a property data and consulting firm, said. “It may have just signal that the new leadership expects the market to play a bigger role in property policies.”

Unlike in major cities where home prices are still rising, smaller cities are starting to see a slowdown in activity. In Ordos in Inner Mongolia, known for its empty buildings, home sales have come to a virtual halt and some district governments had to borrow money from companies to pay salaries of municipal employees, a magazine published by the official Xinhua News Agency reported earlier this month.

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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