Data from both the National Bureau of Statistics and private research institutions show that home prices in second-, third- and fourth-tier cities have rapidly increased on a yearly basis and on a monthly basis since the beginning of 2012.

In July, real estate prices rose in 70 cities, most of which were in second- and third-tier cities, according to a report by the China Index Academy, one of China's largest property research organizations. The general public has a higher sensitivity toward housing price hikes.

There are several reasons for the continuous price hike in second-, third- and fourth-tier cities or even counties.

First, many of these cities have been forgotten by policymakers during this round of housing market control. Since they are excluded from the purchase limit policy and many of them are linked with big cities by high-speed railways and expressways, they have become a perfect alternative for residents in big cities. As a result, housing prices in smaller cities are on the rise.

Second, many property developers turned to smaller cities. Because the home purchase limits are strictly carried out in first- and second-tier cities, developers have moved to third- and fourth-tier cities or counties. Prices of newly built homes in those cities are always far higher than the local average price and the influx of property developers into smaller cities has pushed up housing prices.

Third, smaller cities are fervently engaged in demolition and reconstruction activities for building central business districts, theme parks, economic and technological development zones and government office districts. A large amount of land and even arable land have been occupied, resulting in the soaring land prices and thus leading to a housing price run-up.

The skyrocketing housing prices in second-, third-, and fourth-tier cities and counties are completely out of line with local residents' income, especially in central and west China. We should be highly alert to this trend. Local governments' awareness and responsibility in housing market regulations should be strengthened.

Local governments are apt to think that the housing market in small cities is not the focus of the Central Government's macro-control and they tend to take a laissez-faire attitude toward soaring housing prices pushed by developers and land purchases.

Their misunderstanding should be corrected. Governments of third- and fourth-tier cities and counties where housing prices rise too fast should be held accountable for price surges. Market regulation should be strengthened to strictly prohibit property developers' speculation activities. They should publicize their costs and their profit margins should be appropriately restricted. In addition, local governments should be restrained from large-scale demolition and reconstruction activities. Any land purchase and construction work regardless of real situations and land resources should be prohibited, such as building large squares, development zones, theme parks or luxurious government office buildings.

Therefore, third- and fourth-tier cities and counties should not be left out of China's real estate macro-control efforts. They should not be a playground for developers to rampantly push up housing prices for personal gain, nor should they affect the overall situation of housing market regulation nationwide.

This is an edited excerpt of an article by Yu Fenghui, a financial commentator, published in the Securities Times