Bloomberg News

China’s Foshan Suspends Decision to Ease Home-Purchase Limit

October 11, 2011

(Updates with home prices in third paragraph, shares in sixth.)

Oct. 12 (Bloomberg) -- China’s southern city of Foshan suspended plans to ease limits on property purchases less than a day after saying it would allow residents to buy a second home.

Foshan, which would have been the first Chinese city to ease the restrictions, needs to further assess the curbs, the municipality’s Bureau of Housing and Urban-Rural Development said on its website late yesterday. The city, neighboring the Guangdong provincial capital of Guangzhou, yesterday said it would allow residents to buy a second home priced at less than 7,500 yuan ($1,180) per square meter from today.

Premier Wen Jiabao said last month government measures to control the property market are at a critical stage and need to focus on curbing price gains in less affluent cities after limiting home purchases in markets including Beijing and Shanghai. Home prices in China rose every month from September 2010 before falling for the first time last month, according to SouFun Holdings Ltd.

Foshan’s announcement showed it faced the “central government’s pressure,” Jinsong Du, a Hong Kong-based analyst at Credit Suisse Group AG, said in a note to clients today, maintaining his “underweight” on the property sector. The suspension is a “dramatic move,” he said.

“Property markets may have entered a desperate state, where a local government was pressed to try testing the central government’s bottom line,” he said.

Limiting Home Purchases

A measure of property stocks on the benchmark Shanghai Composite Index rose 1.4 percent as of 11:10 a.m. local time. It has declined 13 percent this year compared with a 15 percent drop in the benchmark gauge.

The State Council, China’s cabinet, after a July 14 meeting chaired by Wen called on cities where price gains were deemed excessive to limit the number of homes each family is allowed to buy. More than 40 cities, including Foshan, adopted such restrictions.

China is trying to balance the needs of local governments that rely on land sales for revenue and managing dissatisfaction with housing affordability. The government this year has raised down-payment requirements on home loans and curbed lending to property developers among restrictions to prevent an asset bubble and social unrest.

Property construction last year drove more than half of economic growth, while land sales contributed 40 percent of revenue earned by local authorities that have amassed 10.7 trillion yuan ($1.7 trillion) of debt.

--Bonnie Cao. With assistance from Jacob Gu in Shanghai. Editors: Linus Chua, Andreea Papuc

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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