Prices in Beijing's real estate market are still rising but not as fast now that the government is trying to cool the sector down.

The average house price per square meter in the second quarter of the year was 7,036 yuan (US$851), 6.5 percent up from the same period of last year, according to recent statistics from the National Development and Reform Commission.

But the increase is lower than the average of 8 percent in 35 other key cities, according to the commission.

Development in the real estate market has also slowed down.

According to the Beijing Statistics Bureau (BSB), real estate investment in the first half of the year was about 52.98 billion yuan (US$6.4 billion), 16.1 percent lower than the same period of last year.

Great market demand is the main reason for rising house prices, said Wang Deyong, a property analyst at CITIC Securities.

Being the capital city, Beijing has a large number of migrants, plus urbanization is still steaming ahead. Moreover, many people want to improve their living conditions when they can afford it, he said.

In May and June, trading was very poor, said Wang Peng, a sales manager with City Rainy Actiliving, a building project near Beijing's north fifth ring road.

But recently business began to warm up; more than 40 apartments were sold last weekend, although the price increased from 5,000 yuan (US$605) per square metre in September last year to 5,950 yuan (US$719) on Tuesday, the manager said.

Property trade volume in the first five months of the year was 691.5 square metres, worth 38.55 billion yuan (US$4.66 billion), 40.6 percent higher than the same period of last year, according to the Beijing Municipal Commission of Development and Reform.

The commission also predicted that house prices in Beijing will maintain a steady increase in the next half year.

The government's policies seem to be having a big impact on the second-hand home sector in Beijing.

The trade of such houses has seen a sharp decline since a 5 percent business tax on house sales was introduced from June 1.

Furthermore, the central government is allowing the local government to charge a 20 percent income tax on the difference between the buying and selling prices of a home. Some districts have already been chosen as pilot areas to charge the tax.

Trade of second-hand homes fell about 62.6 percent last month from May in Beijing, according to statistics of Golden-Keys, a big property agency in the city.

And about half of the potential traders withdrew their homes from the market when the 20 percent tax was introduced late last month.

Most of them put their houses on the rental market, said Zhou Ke, a real estate agent clerk with the company.

According to Golden-Key's statistics, the number of homes for rent increased by 24.5 percent last month compared to May.

According to BSB, in May, even before the tax was introduced, just one of every five homes sold was second-hand, while in Shanghai the figure was one in two, indicating that the second-hand market in Beijing was already small.

Wang Chen, a senior analyst at DTZ Debenham Tie Leung (DTZ), a leading real estate consulting company, said most of Beijing's new homes are middle-priced, between 3,000 (US$ 363) to 8,000 yuan (US$967) per square metre, he said.

Therefore, people are less likely to speculate on these properties.

According to DTZ statistics, about 153 new projects were put on the market in the second quarter this year. About 75.8 percent of these projects are considered to be non-luxury ones with an average price of 5,145 yuan (US$622) per square metre. This also indicates, the analyst said, that many projects are not the type to be speculated upon.

Beijing's real estate market in general is healthy without big bubbles, the analyst said.

The market will keep its steady increase and big price falls are less likely, he said.

The analyst also pointed out that the government should do more to build a transparent market with efficient flow of information.

Although most of Beijing's house prices have not greatly increased, its average house price still ranks the second highest of the 35 cities, coming after Shanghai.

Many people with quite low incomes complain that they cannot afford to buy a home.

"With a salary of only 3,000 yuan (US$360) a month, when can I buy my own house in Beijing?" said Zhu Bing, who began working in Beijing last year.

Beside encouraging developers to build more affordable homes, the government should try to improve living infrastructures in poorer areas to satisfy the demands of those on low incomes, said Zhang Yan, a property analyst at China Securities.

On the other hand, she added, the government should more thoroughly check the qualifications of those buying cheaper housing to ensure they are eligible, and guarantee that those on really low incomes can buy affordable homes.

(China Daily July 21, 2005)