City misjudged national intentions and limits will persist, experts say

SHANGHAI / BEIJING - An urgent notice was published at midnight on Tuesday by the Bureau of Housing and Urban-Rural Development of Foshan, scrapping an online circular issued only 12 hours earlier.

The initial circular, essentially easing recent curbs on home purchases, made Foshan the nation's first city to do so. But the quick reversal is widely seen as a sign of the central government's steely controls on the housing market, which is intended to avert or deflate bubbles.

Foshan, located in central Guangdong province, issued a notice titled "Further Strengthen Control on the City's Housing Market" on the website of the Bureau of Housing and Urban-Rural Development, the local housing regulator.

"The title of the circular was in line with the central government's tightening requirements, but its content means a shift from previous limitations," said Hui Jianqiang, director of Beijing Zhongfangyanxie Technology Service Ltd.

Under the cancelled circular, local families would have been permitted to buy an additional residence priced at less than 7,500 yuan ($1,179) a square meter.

"Such a decision is obviously contrary to the central government's home purchase restrictions, and it will potentially lead more second- and third-tier cities experiencing falling sales in the property market to follow suit.

"The sudden cancellation of the circular may have resulted from pressure from a higher level," said Hui.

Like many cities, land sales contribute a large portion of the local government's income, and a sluggish housing market means less land sales revenue.

"Foshan's quick policy change is a result of the local government's misreading of the central government's property policy. It showed the central government's strong resolution in carrying this policy further and longer," said Chen Jie, a professor specializing in property research at Fudan University.

Gu Yunchang, vice-president of the China Real Estate Association, said that heavy pressure from higher-level governments and unwelcome public attention killed off the easing plan.

"The central government reiterated in late July that the policies on controlling the speculation of the property market should be unchanged," Gu said.

"Related departments and the provincial government may have suggested that the city reconsider the plan."

Also, the plan put Foshan in the spotlight and made the local government hesitant to continue, Gu said.

According to Chen, there has recently been speculation about whether purchase restrictions will end soon, due to the worsening property sales. "But Foshan's case tells developers that there is no chance of a policy easing," said Chen.

The bright side of the dramatic cancellation is that the market has received a clear signal: current property tightening policies will not change, added Hui.

"I stick to my previous opinion that Foshan's new policy itself was still in line with the central government policy. However, the policy was misread and distorted, and the reversal of the policy was meant to eliminate such misreading and distortion," said Chen Sheng, deputy director of the China Index Academy in Shanghai.