SHANGHAI—An industrial city in eastern China reversed itself after announcing it had eased tight property controls in contradiction of national policy, indicating no letup in Beijing's campaign to cool the overheated real-estate sector.
The city of Wuhu had said Thursday that residents were eligible for subsidies and tax waivers for home purchases, stirring expectations that a broader loosening might be on the way around the country.
On Saturday, however, an announcement appeared on the Wuhu government website saying the city would "unswervingly uphold the goals of macroeconomic policy, resolutely choke off unreasonable increases in real-estate prices and restrain speculative investment."
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Finally, on Sunday, Wuhu posted a brief statement online saying that after receiving feedback from "every level of society," the city government has decided to delay implementation as it studies how to improve the policies. The statement didn't elaborate.
The move echoed a similar about-face in October last year in the city of Foshan in southern Guangdong province. In that case, Foshan authorities canceled easing measures just hours after announcing them.
In both cases, it appeared that local governments had exceeded their authority and that Beijing had intervened to reassert national policy aimed at bringing down runaway property prices to more affordable levels in the face of social unrest.
In a note on Sunday, Credit Suisse analyst Du Jinsong advised clients to sell shares in Chinese property developers following the move. "The Wuhu reversal clearly shows that the stock market has severely underestimated the central government's political will to cool the housing market significantly further," Mr. Du said.
The official Xinhua news agency on Sunday carried comments by Premier Wen Jiabao pledging that Beijing would continue to carry out the property tightening policy until prices return to "reasonable" levels.
Expectations of various forms of easing surfaced after the Chinese central bank said last week it will support financing for social housing projects and first-time home purchases.
The Wuhu relaxation move was designed to support purchases of smaller-size apartments and property for self-use only. The municipal government said at the time it is providing a 150 yuan-per-square-meter ($24 per square meter) subsidy for new homes with a floor space of less than 70 square meters and a 50 yuan-per-square-meter subsidy for new homes between 70 and 90 square meters.
The city would also offer subsidies for home purchases by professionals with high qualifications ranging from 100 yuan to 300 yuan per square meter. Wuhu would also waive a tax on property transactions—the "deed tax," which is typically 1%-2% of a home's value— for home purchases, including homes in the secondary market.
Faced with a slowing economy and persistent inflationary pressures, Beijing is in a bind regarding its policies for the property sector, a growth engine but also historically a source of social grievances and instability.
Income from land sales and property transaction-related fees has traditionally been a source of revenue for local governments in China.
Housing sales in China have plunged in recent months as home buyers have taken to the sidelines in anticipation of further declines in prices thanks to Beijing's tightening campaign.
The average sale price of homes in Wuhu city was 5,567 yuan per square meter last month, down 0.25% from a month earlier and 5.7% from the same period a year earlier, according to private-sector data provider, China Real Estate Index System.
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