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China Property on Rebound Despite Price Controls

TAIPEI ( TheStreet) -- There goes another tract. A fleet of earth-movers behind a blue barrier is causing a private earthquake as it demolishes a row of Soviet-style apartment blocks.

In the place of that tract, theoretical but likely in just about any Chinese city, a developer has made deals to put up an office tower, a shopping mall or a housing complex possibly so palatial that even the White House turns pale.

Chinese officials had said they want to put a roof on property speculation to bring down prices that threaten social stability by making flats too expensive for many middle-class families. Common buyers couldn't compete with more moneyed speculators who would rent out property while awaiting appreciation and then sell.

So last year the central government set price controls, tightened credit and earmarked money for new low-income housing. This month banks cancelled 15% mortgage discounts, apparently to cooperate with government price-control efforts.

But China still hopes to increase the supply of real estate. That explains the projects that dominate city centers today as they have for a decade. Property builders, including foreign companies with a grip in China as well a Chinese counterparts listed offshore, should obviously gain from the increasing supply.

According to China's state-run China Daily newspaper website, the country's property market "has been recovering."

China's real estate development index logged a "small rebound in August" after sliding for 14 consecutive months in a row, the paper says, citing the National Bureau of Statistics. Property investment for the first eight months of 2012 was 4.37 trillion yuan, up 15.6% compared with the same period last year, the bureau said.

China's residential property sales volume surged in May by 73.7%, with prices up 1.6%, up from a sales volume trough in February.

The English-language paper aimed at molding foreigners' opinions about China added in its Sept. 12 article that major property developers were "accelerating" purchases of land and that local governments were eager to make those sales to earn money.

As if to justify the bull run of property developments, a state planning office said via Chinese media in August that property controls had been effective: Average home prices in 58 out of 70 cities had dropped in July. A lot of the new starts aren't in residential property anyway, and China needs to buck a broader economic slowdown. Everyone's happy, so let the earthmovers roll.

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