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Growth in China home prices to sustain momentum in 2021

FILE PHOTO: File photo of an excavator at a construction site of new residential buildings in Shanghai

By Lusha Zhang and Ryan Woo

BEIJING (Reuters) -China's home prices are expected to grow faster this year than anticipated a few months earlier fuelled by hot demand in major cities and easy liquidity, despite Beijing's heightened cooling measures, a Reuters poll showed.

As China's economy recovers from the COVID-19 shock, authorities have stepped up curbs on the property sector to guard against financial risks as concerns mount over speculative behaviour in some parts of the market. Home prices, however, extended a rising streak in recent months with heat spilling over into some smaller towns from metropolises.

Average residential property price growth is estimated to grow 5% in 2021, according to 11 analysts and economists surveyed by Reuters.

The forecast topped a 3.3% gain tipped in a February survey, and slightly higher than around 4.9% gain in 2020. Home prices are seen slowing to 3% in the first half of 2022.

Despite stepped-up market restrictions, prices are on a rising trajectory, said Huang Yu, vice president of China Index Academy, a Beijing-based property research institute. Climbing land prices are also expected to buoy housing prices, she said.

Zhao Ke, analyst at China Merchants Securities, said muted prices in tier-3 and 4 cities were likely to drag down overall gains.

Chinese authorities have since this year intensified their efforts to rein in the relentless rise in home prices and drive speculators out of the market. Local policies include capping prices set by developers and preventing some real estate agencies from setting excessively high second-hand home prices. Banks in major cities also hiked mortgage rates.

Property sales volume is expected to be flat from last year, unchanged from the previous poll, and versus a 2.6% gain in 2020.

Housing investments are estimated to rise 7% this year, in line with the pace in 2020, and marginally higher than 6.4% in the February poll.

"We expect new construction investment to revive in the third quarter on fast work resumption and rising raw material prices," China Merchants Securities' Zhao said.

"Home project construction investment will be the major pillar of overall property investment, which will also be likely driven by rental housing construction," China Index Academy's Huang said.

Most survey respondents forecast it will take a long time before China enacts broad property tax, but some predicted some bigger cities with frothy housing markets might see pilot schemes come into force in the coming year.

Speculation has risen recently that China plans to expand property tax reforms beyond Shanghai and Chongqing in efforts to cool prices. State media have cited experts saying the southern tech hub of Shenzhen and the resort island of Hainan could be next to roll out pilot schemes.

Asked to rate the affordability of Chinese housing on a scale, with 1 being the cheapest and 10 the most expensive, analysts' median answer was 7, in line with the last poll.

(For other stories from the Reuters quarterly housing market polls:)

(Additional Reporting by Jenny Su; Editing by Jacqueline Wong)