China Tighten Property Price ControlChina’s home sales slowed down a bit in October after the Golden September, but home prices keep the momentum, putting greater strain on local governments to achieve their price control target set at the beginning of this year. Total transacted residential floor area during the month was down 14% m-o-m to 100 million square meters. On the contrary, first-tier cities’ home sales remained active, with total sold floor area edged up by 13.6 percent m-o-m to nearly 5 million square meters – the second highest level this year.

Growth in new home prices, however, showed no signs of slowing and continued to accelerate for the tenth consecutive month. Average new home prices in 70 major cities grow at an average of 9.6 percent y-o-y in October. It was the fastest pace in the past three years, following by 9.1 percent in September and 8.3 percent in August, according to the official data released earlier in November. 69 of monitored cities saw price gains in October, with the exception of Wenzhou, a city in southeastern Zhejiang where home prices have been falling for more than two years.

Prices increased the most in big cities, especially first-tier one. In Shanghai, new home prices rose the most among all the 70 cities by 21.4 percent in the past twelve months. Beijing came in second, posting a y-o-y growth of 21.2 percent, followed by 20.7 percent in Guangzhou and 20.6 percent in Shenzhen.

More local Governments rolled out new measures in November, trying to achieve their price control targets by the end of this year. Beijing municipal government said it would keep home prices steady in 2013, while Guangzhou and Shenzhen also set targets to keep price growth below the growth of resident’s disposable incomes. Shanghai government in early November raised the minimum down payment requirements for second-home buyers from previous 60 percent to 70 percent, following similar measures announced in Shenzhen and Beijing in April. Shanghai and Guangzhou also announced stricter financial criteria for buying homes. Home buyers without a hukou must show proof of tax payments or social insurance payment certificates for the last three years in Guangzhou or two years in Shanghai. Previously, only one year of proof was required.

We expect to see more local governments to roll out new cooling measures in coming months and the home price growth may ease moderately, but given the price increases are far higher than their targets with less than two months left, they may need more than that to meet their deadlines.