Housing sector may lose steam

After previous rounds of hikes, home prices in China's largest cities might lose momentum as early as this quarter, a report released by the Chinese Academy of Social Sciences said on Wednesday.

The growth rate is expected to stabilize throughout next year and could even drop at the end of 2014, it added.

"In the short term, home prices in first-tier cities may hit their ceiling, as skyrocketing prices have already overshadowed homebuyers' payment ability," said Zou Linhua, a co-author of the report and a researcher at the National Academy of Economic Strategy of the CASS.

In November, new home prices in Beijing stood at 31,333 yuan ($5,160) per square meter, up 28.48 percent year-on-year, according to the China Index Academy. Meanwhile, the city's average annual disposable income rose only 9.9 percent to 36,736 yuan the same month.

In addition, a large portion of housing demand has been exhausted in previous buying sprees, and developers bought huge amounts of land in late 2012, which will translate into a large supply next year, all contributing to the expected price growth stabilization, according to Zou.

However, as major cities such as Beijing, Shanghai and Guangzhou are still attracting many new residents, demand remains robust and prices will likely remain high, the report said.

The situation in the housing markets of the nation's third and fourth-tier cities, however, is completely different. The property boom in past years has prompted developers to flood the market, while demand is sluggish as many are leaving those cities. Growth momentum there is unlikely to continue and could even drop, the report said.

The report called for different policy orientations for different markets, saying that previous property-control policies were criticized for being too uniform.

"The .clean cut' control policies previously in effect have caused excessive residential land supply in third- and fourth-tier cities and short supply in first-tier cities," said Ni Pengfei, director of the Urban and Property Research Center of the National Academy of Economic Strategy.

To curb increases in home prices, he said, it's essential to boost residential land supply in first- and second-tier cities and reduce it in third- and fourth-tier cities.

Previous property policies, which focused on administrative measures, are also being criticized.

For instance, the 20 percent capital gains tax on secondhand home purchases imposed in March, although intended to cool the market by curbing speculation, in practice sparked a buying spree before it was implemented and pushed up prices. The tax was actually transferred to buyers, most of whom are not speculators.

The report also called for measures that rely more on market forces and improve the supply side, rather than measures that depress demand. While affluent families should be allowed to buy more expensive homes, the government should build more affordable housing targeted at average and lower-income households, it said.

"Previous affordable housing projects targeted lower-income residents, and the .sandwich class' was ignored. They could neither afford to buy private property in large cities nor meet the criteria to apply for public housing. They are suffering," said Ni.