House prices in key cities continue to trend down

House prices in key cities including the capital are continuing on their way down-a trend that has been observed for the first time over several quarters-as a result of tightened policy controls, according to a new report released by the Chinese Academy of Social Sciences.

The report said prices in Beijing in May fell 4.09 percent against April and cities neighboring the capital also retreated in price. In Tianjin, home prices in May were down 1.97 percent month-on-month and in Langfang, Hebei province, which borders Beijing, prices dropped 8 percent.

The report said that Shenzhen, Suzhou, Hefei and Zhengzhou－which experienced double-digit home price growth in past months－saw their prices lower or with little change last month.

The new policies that curbed speculation in residential property markets have included tightened financing and transaction regulations over properties with good education resources, also known as xuequfang, literally meaning the "properties in areas with good schools".

In Beijing, home prices in Xicheng and Haidian districts, two regions with clusters of good primary and middle schools, had "sharper decreases than other districts" in May due to the new policies.

Housing authorities in key cities across China－including Shanghai, Beijing, Guangzhou, Shenzhen and cities with fast house price growth such as Hefei, Zhenzhou and Wuhan－have introduced a slew of measures to fight speculative buying in the residential property market.

These include requiring higher down payments, an increasing lending rate for home loans, and tougher purchase restrictions. They have been rolled out in order to rein in highflying home prices and quash potential asset bubbles.

The report said the market boom has also been cooled by relatively tightened liquidity conditions, as China moved to deleverage the financial sector.

In Shanghai and Beijing, homebuyers have reported waiting for half a year since applying for home loans for their second home, without gaining approval.

"In Shanghai a handful of commercial banks have suspended lending to homebuyers, particularly those who are applying for financing their second homes. Lenders have strengthened their scrutiny of loan applicants abilities to pay their debts, as they tighten risk management," a source in the retail banking sector told China Daily.

"This move is also in alignment with policymakers' decision to do battle with speculation," the source added.

Analysts said on Tuesday that tightened lending had immediate effect on transactions and without liquidity speculative demand had been taken out of the market.

According to Yan Yuejin, research director of E-House China R&D Institute, tightened lending was to date the most "powerful" tool to curb speculation, and it was likely that more cities would use financing tools to rule speculators out of the residential property market.

More home purchase restrictions and the tightened monetary environment will weigh on market demand in the short term, said the CASS report, which predicted prices in previously red-hot markets like Beijing would continue their downward movement.

However, in the long term, limited land would restrict housing supplies in big cities and threaten to push home prices higher, the report added.

Xinhua contributed to this story.