China to Stem Local Property Easing, Shanghai Securities Says

China will stem any new property easing by local governments as the central authority is determined to maintain curbs on housing, Shanghai Securities News reported today.

The central government will “absolutely” not allow local authorities to “sing a different tune” on property control policies, the newspaper affiliated with state-run Xinhua news agency said, citing an unidentified director at the country’s housing ministry.

Tensions between the two levels of authority will be on show next week as officials gather in Beijing for the annual National People’s Congress starting March 5. China’s local governments have attempted to ease property tightening policies with little success, while Premier Wen Jiabao has maintained that he won’t waver on real estate controls and efforts to bring prices down to a reasonable level.

“The central government will not relax its property tightening this year,” Jeffrey Gao, a Shanghai-based analyst at Macquarie Capital Securities, said in a phone interview today. “They may turn a blind eye to mild moves to ease the curbs in individual cities, but the official wording of their policies won’t change because home prices could easily rebound.”

China’s February home prices posted the biggest decline in 19 months as the government pledged to maintain curbs on property, SouFun Holdings Ltd., the nation’s biggest real-estate website owner, said yesterday.

Shanghai Curbs

Shanghai restated home purchase restrictions on local permanent residents buying second homes on Feb. 28, a week after Shanghai Securities News reported that the country’s financial center had broadened its definition. The eastern Chinese city of Wuhu on Feb. 13 reversed its decision to relax property curbs including waiving a deed tax and subsidizing some purchases on Feb. 9, the first city this year to signal any easing.

At the same time, the southern city of Zhongshan, the hometown of Sun Yat-sen, the founder of modern China, was able to increase a price cap on residential home sales in January, and the western city of Chongqing last month also raised the minimum threshold where a property holding tax kicks in.

China’s two-year efforts to control the property market included measures from raising down-payment and mortgage-rate requirements, imposing property taxes for the first time in Shanghai and Chongqing, and home purchase restrictions in about 40 cities.

Shrinking Revenue

The result has been shrinking local government revenue. Land sales in Wuhu, a mid-size industrial city in the east and home to China’s sixth-largest automaker, fell 51 percent last year to 4.64 billion yuan ($737 million) from 2010, while they slumped 60 percent to 5.3 billion yuan in the northeastern industrial city of Dalian, according to SouFun, the nation’s biggest real estate website.

China has more than 1,000 county-level governments and hundreds of city and municipal councils that rely on revenue from local taxes, land sales and central-government transfers because rules bar most of them from selling bonds. Land sales make up 30 percent of local government revenue and in some cities account for more than half, according to a June 2011 report by Zurich-based UBS AG.

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