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China Could Ease Property Restrictions In Q2 Of 2012

News Posted On: 25 November 2011

China looks increasingly likely to ease restrictions on the property market during the second quarter of next year, on fears that a steep decline in property prices could push economic growth below Beijing’s target 9% economic growth. It is expected that the correction in prices will continue to accelerate, especially with transaction volumes falling, but there is a limit as to how far Beijing will let the property market correct itself.

This is because local governments rely heavily on land sales for revenue, and property prices cannot drop by more than 25% in order for economic growth levels to continue at their current rate.

Local governments are likely to ease restrictions during the second quarter of next year, and the third quarter is likely to see the central government ease restrictions on home purchases and credit.

China has implemented a whole series of tightening measures since April 2010 in an effort to hold back property prices which are out of reach for most of the country's 1.3 billion occupants. These have included higher deposits, a ban on second home purchases, property investment, and additional taxes in many cities. At the same time many localities increased the construction of low income homes.

Latest government data shows average property prices in 70 Chinese cities have declined, but the Chinese Premier Wen Jiabao has already said the government will continue with its tightening measures until property prices are at a reasonable level. While most analysts expect prices to fall further, they don't expect a market collapse as the price corrections are due to government policies.

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