Shaanxi introduces new property restrictions

Northwest China's Shaanxi Province asked its cities over the weekend to strengthen cost calculation for property projects and keep the profit margin for real estate developers at around 10 percent, in a move to stop local housing prices from rising too fast.

The Shaanxi Provincial Housing and Urban-Rural Construction Department issued a notice jointly with the Shaanxi Provincial Price Bureau, requiring cities across the province to calculate housing costs for different areas and publish the housing price ranges of all areas, according to a report published on its website Friday.

Property developers will be required to file housing prices of their property projects with local price authorities prior to house sales, and the homes must be within the price range for the areas where they are located, the report said.

The local authorities said that the new policy aims to prevent housing prices from rebounding and to provide affordable houses for local residents while ensuring profits for property developers, China National Radio reported Sunday.

However, it is not practical to calculate housing costs, as different management can lead to higher costs and different properties in the same area can be sold at different prices, Gu Yunchang, secretary-general of the China Real Estate Association, told the Global Times Sunday.

This new policy could lead to fraud or even government corruption, Gu said, noting that the government should adopt economic rather than administrative measures. He suggested removing the nationwide purchase limits and replacing them with economic measures, such as taxation.

Premier Wen Jiabao reiterated the need to control the property market, Xinhua News Agency reported Thursday, and said the controls should be further improved with more market and legal measures in the long term.

But it is unreasonable for the government to control housing prices, as it is not in accordance with the market economy, Hui Jianqiang, head of research with property consultancy E-House China, told the Global Times Sunday.

Real estate developers will simply stay away from Shaanxi and go to regions with higher profit margins, Hui said. "As a result, the supply of residential houses will fall, and the local economy, which is greatly supported by the real estate industry, will also be affected."

If the housing supply keeps shrinking and cannot match the market demand, the price will face upward pressure and the Shaanxi local government will face the opposite effect from what they are expecting, Hui noted.

House prices have stabilized nationwide in recent months. New home prices in 31 of 70 major cities rose in September, down from 36 in August, official statistics showed.