China prepares further property tightening

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Some Chinese cities are preparing fresh property tightening steps as housing transactions and prices show signs of a rebound, reinforcing market expectations that Beijing will not ease its grip on the sector any time soon.

The prosperous eastern province of Zhejiang intends to order developers to park pre-sale proceeds from their real estate projects in escrow bank accounts, according to a document obtained by Reuters on Wednesday.

Major cities, including Shanghai, Wuhan and Qingdao, are drawing up similar plans, according to state media.

The requirement will put a strain on developers' cash flow as pre-sale proceeds account for about 40% of their funding.

"Some developers will have to cut prices in the short term to facilitate sales," said Cheng Dong, a property analyst with BOC International in Shanghai.

China launched a slew of measures in April to cool the red-hot real estate market, in part to ease popular complaints that many people are unable to afford record home prices.

Sales have shown signs of recovering in recent weeks, as have some prices, and a number of industry analysts warn that Beijing could tighten further if developers raise prices during the traditional busy selling season in September and October.

Concern about further property tightening was one reason behind a drop in Chinese shares on Thursday. Shanghai's main index was down 1.33 percent in early afternoon.

The People's Daily, the mouthpiece of the Communist Party, said China must maintain curbs on speculative housing demand as the benefits of the crackdown will outweigh the drawbacks.

The paper said the steps -- including higher down payments and mortgage rates and curbs on sales to non-residents -- would make prices more affordable for Chinese eager to get a foot on the property ladder, overriding the hit to economic growth.

"This round of property tightening is an important step to improve people's lives and promote a harmonious and stable society. We must firmly stick to it," the paper commented.

The newspaper's views are usually taken as representing official policy.

If China could increase affordable housing construction, the impact of the tightening on the country's investment growth as well as on related industries would be short-lived, it added.

The comments were echoed by Xia Bin, a cabinet adviser, who was quoted by the official China Securities Journal as saying that Beijing would continue with its property tightening drive.

He said there was no need to panic about a moderation in economic growth over the rest of the year. Such a trend was expected after Beijing acted to cool the housing market, tighten loans to local government financing vehicles and close down obsolete, energy-intensive plants.

Gross domestic product growth slowed to 10.3% in the second quarter from 11.9% in the first three months.