Beijing Home Prices Fell 5.1% During Past Year

The average price of a new apartment in Beijing fell 5.1% during the first 10 months of 2011 from a year ago to 14,083 yuan ($2,271) per square meter, according to a Beijing Real Estate Association report Friday.

For the last eight straight months over 90% of home purchases were made by families who didn’t own any other housing, suggesting that the central government’s policy of cooling the housing market is squeezing speculative money out of the market.

In April the government began to place restrictions on the purchase of second and third homes in 43 major cities. The resulting decline in demand has forced developers to start cutting prices to promote sales.

Slowing sales have forced Beijing real estate agencies to shut down 177 branch offices in October alone, bringing the total of such closures to almost 1,000 this year.

Concerns that the tightening may strangle economic growth have been raised by some analysts. But Premier Wen Jiabao and other central government policymakers have made it clear that squeezing the speculative bubble out of the market is absolutely necessary to prevent the kind of collapse that triggered the financial crisis in the US and Europe. Consequently most market watchers expect home prices to continue falling for some time to come.

China’s home prices have been rising steadily since the central government began property reforms in 1998 to shift residential ownership from the government to individuals. The government’s nearly $700 billion stimulus package which forced banks to open up credit in the wake of the 2008 financial crisis caused property prices to surge out of control, triggering this year’s cooling measures.