BEIJING - Property prices in China's smaller cities maintained robust growth this year, despite rigorous measures designed to cool the real estate market. The growth has highlighted the underlying conflict between the central government and local authorities.

By the end of November, at least 30 cities had failed to meet the home-price target set by local governments at the start of the year, according to a report by Centaline Property Consultants Ltd.

"Most of the cities, mainly those in China's eastern, southern and northeastern regions, are third- or fourth-tier cities that have no restrictions on home purchases," said Zhang Dawei, an analyst with Centaline.

Overall, property prices fell for a third month in November, dropping 0.28 percent month-on-month after a decline of 0.23 percent in October, according to the latest report from China Index Academy, a leading institute focusing on real estate research. Prices slid in 57 of the 100 cities tracked by the academy, including all of the 10 biggest.

Prices in Shanghai dropped 0.47 percent and those in Beijing dipped 0.08 percent.

However, the price of homes in some second- and third-tier cities still registered strong growth, and Weihai, Yantai, Shantou, Baotou and Taiyuan led the trend.

Zhongshan, a small city in Guangdong province, provides a good example. The local government set a target price of 5,853 yuan ($920) a square meter this year.

However, Centaline's calculations suggest that the average property price in the city fell below the target only during February and March. In September, the city's average price hit 6,336 yuan a square meter.

"The growth of prices in smaller cities mainly reflects the underlying conflict between the central government and local authorities, because land sales have been a major source of local government revenue," said Qin Xiaomei, chief researcher at Jones Lang LaSalle Inc (Beijing), an international provider of real estate services.

According to Zhang, local governments have a strong desire to loosen real estate policies after suffering a decline in land sales and a subsequent fall in tax income from property transactions.

Industry statistics show that the price of land has fallen by between 20 and 30 percent on average this year.

Although insiders said the Ministry of Housing and Urban-Rural Development has ordered local governments to continue their purchase-restriction policies next year, the possibility remains that the measures will be loosened.

"As a kind of administrative measure, home-purchase restrictions should be phased out," Qin said. "But it is definitely a gradual process and will depend on individual cases."

Zhu Zhongyi, deputy secretary-general of the China Real Estate Association, said the trend for property prices next year might become clearer after the country's Central Economic Working Conference, scheduled to begin later this month.

In October, Premier Wen Jiabao reiterated the message that the government will not loosen its property-tightening measures until home prices return to reasonable levels.

China Daily

(China Daily 12/07/2011 page13)