Beijing: China’s real estate investment growth slowed in the first quarter, dragging down the broad economic recovery, though property sales remained strong, pushing up home prices and prompting policymakers to tighten property policies.

Real estate investment, which was worth 11 per cent of GDP in first quarter of 2013 and directly impacts around 40 other business sectors, rose 20.2 per cent in the first three months of 2013 from a year earlier, the National Bureau of Statistics said. That was slower than an annual increase of 22.8 per cent in January-February.

Revenues from property sales in March rose 46.5 per cent from a year earlier, marking the second highest monthly gain since July 2011, though cooling from annual growth of 77.6 per cent in the first two months, according to Reuters calculations based on official data.

Strong property sales, alongside with rising home prices, have sparked concerns that home costs could start to spiral out of control and have forced the government to launch a fresh round of measures last month to try to cool them.

Some economists are worried that the new tighter property policies could drag down the overall economy, which grew 7.7 per cent in the first quarter from a year earlier, slowing from the 7.9 per cent pace set in the final quarter of last year.

Capital gains tax

“The slowing property investment has some effect on dragging down the broader economic growth, especially when the government has already taken tightening measures to cool this sector,” said Li Huiyong, economist at Shenyin & Wanguo Securities in Shanghai.

China’s central government said on March 1 that it planned to introduce a 20 per cent capital gains tax and higher down payments and mortgage rates for second-time home buyers in cities where prices were deemed to be rising too fast.

China’s major cities have unveiled strict property controls, including Beijing raising minimum down payments on second home purchases to 70 per cent of valuation from 60 per cent.

Analysts sat the revival in home sales might be short-lived after local governments unveiled detailed plans for implementing new curbs as home buyers rush to finalise deals to avoid the new capital gain tax.

China’s home prices have seen a gentle upswing since around the middle of last year when the central bank began to expand monetary easing as part of Beijing’s growth-supporting policies.

Average new home prices in 70 major cities climbed 2.1 per cent year on year in February despite the government having tried to calm the house market over the last three years.