China is addressing its housing price problem at a local level to avoid triggering a sudden slowdown that will affect the economy or prevent a sudden spike in home prices.

For most of 2013, China's property sector saw a double-digit increase in its property prices. But in the later part of last year, prices began cooling down as easy credit started surfacing and the government closed down on speculative investment, Reuters reported.

Like Us on Facebook

Based on official data posted on Sunday, the country's annual growth in new home prices plunged to an 11-month low last month. The data also showed a 6.9% decrease in property sales in the first quarter compared to the previous year in terms of floor space, with a 7.8% drop in terms of value.

According to Zhao Xijun, the deputy head of the Finance and Securities Institute in Beijing, the central government shows no sign of relaxing property controls on a national scale despite the slowdown of the economy.

He also said the pressure to take action lies on local governments because they have maturing debts that need to be repaid.

Local governments depend mostly on land sales revenue to fund debts that now total US $2.9 trillion (17.9 trillion yuan). Naturally, the price drop and cooling of sales have become a cause of concern when it comes to servicing debts.

Meanwhile, economists expect the property restrictions, which have been introduced in recent years to mostly remain unmoved, especially in big cities. Some small cities such as Tongling, Ningbo, and Nanning have begun to relax the restrictions on property purchases.

In response to the price drop, President Xi Jinping said the country should get used to a "new normal" of slower home price growth as the state implements reforms that will help decrease debt levels and generate long-term growth.

Because of the cool-down in the real estate industry, China's annual economic growth has been pulled down to an 18-month low of 7.4% in the first quarter. If this slow growth continues, China would risk missing its goal for economic growth for the first time in 15 years.

Zhu Baoliang, a chief economist at government think-tank State Information Centre, said regulations should be naturally relaxed in the occurrence of price drops and if prices stop increasing. However, Zhu said the property prices will most likely not rise any more.

The central bank has called on other banks to expedite home loan grants to first-time home buyers last week. This move, however, would only have a limited impact on the property sector.

Li Huiyong, Shenyin & Wanguo Securities chief economist, said China needs to maintain loose liquidity to protect its economic growth.