China may loosen restrictions on property market in 2012

According to a report by one of the country’s most prestigious universities, China may loosen restrictions on the property market in the third quarter of 2012, because the drop in housing prices could cause a slowdown in economic growth.

Prices and sales of apartments, as well as investment in the housing industry will fall in the first quarter of next year as a result of the stringent measures taken by the government to curb runaway property market, according to a report revealed on Saturday by People’s University of China.

The document makes clear that the chances of the market collapse are “minimal.”

A 20 percent drop in home prices will force the government to adjust its policies, as a steepest descent to economic growth would fall below 9 percent in 2012, says the report.

The report expected that the change in the measures could be carried out in the period from July to September next year. By then, the central government would relax credit for the property market and raise the limits on the purchase of apartments and houses.

However, the price adjustment will not cause systemic risk, a sell or a “hard landing” of the national economy, explains the report.

Since April 2010, China has imposed a series of measures to control rising housing prices, including higher down payments, limits on the number of properties that a single individual can buy, the introduction of property tax in some cities and construction of apartments for people with low purchasing power.

Official statistics released on Friday shows that 34 of the 70 cities in which the government monitors the behavior of the real estate market indicate decline of new property prices in October, compared with the 17 they did in the previous month.

The new property prices in four major cities, Beijing, Shanghai, Guangzhou and Shenzhen recorded monthly fall in October, after remaining stable for three months.

At the same time, the report notes that local governments could begin to remove restrictions in the second quarter of 2012, since they depend heavily on land sales for revenue.

During a visit to Russia on earlier this month, Prime Minister Wen Jiabao reiterated the government will not give in implementing the measures, and the commitment to maintaining housing prices to a “reasonable” level.

The report also argues that China’s economic growth slows next year to 9.2 percent, compared to 9.4 percent expected this year.