China Home Prices Fall In April

Home prices in China fell in April, indicating that the government's efforts to curb the property market boom are gaining further momentum.

According to the data released by the National Bureau of Statistics Friday, new home prices declined in 46 out of 70 major cities in April on a year-on-year basis. Average home prices in China's 70 major cities fell 1.2 percent in April from a year earlier, reports Reuters.

In its attempt to cool down property market, the government enforced control measures, including higher down payments and home purchase restrictions. The fall in home prices was mainly due to the price cuts announced by property developers to encourage sales.

Also, some commercial banks lowered mortgage rates for customers buying their first homes. As a result, major cities like Beijing, Shanghai, Guangzhou and Shenzhen reported a month-on-month fall in prices of newly built homes.

Earlier this month, Industrial & Commercial Bank of China Ltd asked its branches to stop offering discounts on mortgages for first-home buyers, reported Xinhua News Agency.

While a cooling effect is seen in the property market as a result of the government's measures to control home prices, it is slowing down the recovery of the Chinese economy.

Developers have slowed the pace of new project starts and overall construction activity has eased as a result. Their caution is understandable: the government has given no signal that its policy controls will be relaxed though, given the weakness of April's data, the chances of that happening have risen, Mark Williams of the Capital Economics said.

China is in a bind regarding its policies for the property sector as a result of the slowing economy and persistent inflationary pressures. Income from land sales and property transaction-related fees has traditionally been a source of revenue for local governments in the country. In March, Premier Wen Jiabao made it clear that the government did not intend to relax its property market controls.

The large volume of unsold property on developers' books suggests that activity in the construction sector will remain weak even if growth in the overall economy accelerates again.