Municipalities in China would do well to resist the temptation to try to circumvent central government property curbs this year, no matter how important real estate is to their local economies.

Premier Wen Jiabao told about 3,000 lawmakers at the annual meeting of the National People's Congress in Beijing on Monday that his government will proceed with efforts to impose property curbs and ensure strict enforcement until home prices drop to affordable levels on a sustainable basis.

A few days earlier, Wang Juelin, vice director of the Ministry of Housing and Urban-Rural Development's policy research center, also dismissed speculation of a possible loosening in austerity measures in 2012. The hard line taken by central authorities isn't welcome news to local government officials from areas where real estate development has been a pillar of growth. But it appears they have little choice but to accede.

Representatives from across the country are in Beijing for the dual meetings of the National People's Congress and the Chinese People's Political Consultative Conference from March 3 to 14. High on their agenda are issues related to the well-being of citizens, such as housing, food safety and environment protection.

Speculation about a relaxation in tough property measures was fueled by some signs of intermittent easing in some parts of the country. But they proved illusionary.

For example, in mid-February, the Shanghai Securities News reported that Shanghai would stretch its definition of "local" families eligible to buy a second home to households that have held residency permits for at least three years. A week later, municipal officials issued a clarification. It said only those holding permanent residence permits would be eligible to buy a second home.

In the confusion, a local housing authority official seemed to suggest that eligibility had always been extended to those with residency permits of at least three years. That left developers and realty agents scratching their heads. They said they had never heard of that policy before. Whatever the truth of the matter, the city's clarification has signaled that the central government curbs will be enforced to the letter in Shanghai.

Limited impact

As of March 2009, an estimated 671,000 people coming from the rest of China held residence permits for at least one year in Shanghai, a city of 23 million people, according to a China Business News report, citing the latest data available from the local statistics bureau.

The comparison shows that even a change in definition of "locals" for home eligibility purposes wouldn't have had a significant impact on the housing market anyway.

Earlier in February, Wuhu, a smaller city in Anhui Province, announced plans to waive a deed tax and subsidize some home purchases, becoming the first Chinese city this year to attempt some form of policy easing. Wuhu was forced to beat a retreat a few days later, probably in face of opposition from central authorities.

Last October, Foshan, a city in the Pearl River Delta of southern Guangdong Province, also was forced to shelve plans to ease limits on home purchases, less than a day after announcing them.

Local officials may call their efforts "fine-tuning," but it's clear the central government isn't buying it.

Several Chinese cities, including Beijing and Shanghai, have smoothly implemented revised criteria for "normal" houses, a move aimed at helping buyers qualify for preferential tax treatment on low- to middle-cost homes.

In Shanghai, for instance, after the new criteria went effective this month, more than 60 percent of new homes in Shanghai were defined as "normal" housing, compared with the previous proportion of less than 20 percent. More than 80 percent of existing houses also fall into that category. The new criteria may boost the city's home transactions by at least 20 percent, Century 21 China Real Estate predicted earlier.

On the mortgage front, the news for some prospective homebuyers also has been promising. The country's four major lenders, including Industrial and Commercial Bank of China and China Construction Bank, confirmed that they will accelerate their mortgage loan application process for first-time homebuyers and will set a more "reasonable" interest rate for those applicants. Some lenders have already begun to provide standard interest rates or even discounted rates to first-time buyers, compared with a previous premium of between 5 percent and 10 percent last year, according to earlier media reports.

All these examples, I guess, point to a pretty clear bottom line where the central government is concerned: Demand from first-time buyers who want nothing more than to own a decent roof over their heads will be a priority and policies will be attuned to helping them.

For their part, developers have been reading the writing on the wall and are slowly abandoning hopes for any major policy loosening in the short term. Many are starting to unload their inventories by introducing lucrative discounts to trigger sales, particularly in the lower-end of the market.

That strategy is apparently paying off. New home sales in February, excluding government-funded affordable housing, surged nearly 90 percent from January to 403,000 square meters in Shanghai, data showed. The average price, meanwhile, fell below the 20,000 yuan (US$3,170) per square meter for the first time in 19 months, with nearly 70 percent of the apartment sales below that threshold.

During the latest week ended March 4, purchases of new homes surged to their highest level in seven months as more developers joined the price-cutting ranks. The Poly Real Estate project in northern Baoshan District, where discounts were as high as 20 percent, reported 257 contracts signed during the seven-day period.

Developers on the mainland may not like price reductions, but when that bandwagon starts rolling, they would be fools to try to buck the trend.