By Dominique Fong

BEIJING--When a rumor spread in June 2015 that the Beijing city government would move most of its offices--potentially 400,000 workers--to the sleepy suburb of Tongzhou, property sales there doubled within weeks.

Authorities confirmed the rumor a month later and quickly moved to arrest the frenzy, limiting sales to first-time buyers and longtime residents. By October last year, activity was down from over 1,500 sales a month to 500.

The next month, sales jetted higher than the summer surge as buyers found ways to skirt the restrictions.

"Tongzhou, all of a sudden, became like the focus of the world," said 29-year-old Chen Liang, who grew up in Tongzhou and blogs about life there. In May, Mr. Chen pooled money from relatives to buy a one-bedroom apartment for 2.22 million yuan ($320,700).

The drama in Tongzhou shows how hard it is for China to confront a homebuying spree in its biggest cities and keep property prices in check--even in a place where it is promoting development. The ultimate fear is an unsustainable, debt-filled asset bubble that causes broad damage when it bursts.

Yet owning a home remains one of the chief ways a Chinese family can accumulate wealth. Even in a slowing economy, property prices in major cities have continued to rise. In October, mortgages accounted for about three-quarters of all new lending.

In some ways, Tongzhou represents exactly the kind of urbanization China wants. It fits into plans to get people out of Beijing's clogged city center and to organize something of a supercity encompassing Beijing, Hebei and the nearby megacity of Tianjin, popularly dubbed "Jing-Jin-Ji."

"Tongzhou is sort of looked at as a testing ground," said Thomas Hahn, a University of California, Berkeley, adjunct professor and a geographer who researches Chinese urban-planning issues. "If they don't get this right, then that whole construct of Jing-Jin-Ji will probably not succeed."

Giant posters proclaiming Tongzhou as the new subcenter of Beijing flank the suburb's streets, with slogans such as "Building the China Dream."

Tongzhou straddles Beijing's just-completed sixth ring road. A subway ride from the city center takes about an hour. Yet the prospect of hundreds of thousands of government workers and their families moving there, along with new services, hospitals and business activity, drew thousands of home buyers.

The relocation's promise of a blossoming school district attracted some buyers like Gao Xuemei, a 35-year-old longtime Beijing resident, who bought a two-bedroom apartment in Tongzhou for 2.1 million yuan in June last year. "After renting an apartment for all these years, we wanted to buy [our own], especially for our kid," Ms. Gao said.

The market, however, has become prohibitive for many. "Quite a lot of my friends want to buy a home in Tongzhou, but can't, because of the restrictions and also because they can't afford it," Ms. Gao said.

One older couple who already owned a home in Beijing were barred from buying a second in Tongzhou. They considered a divorce, to render one spouse a first-time buyer. Instead, their son and his wife bought an apartment.

They won't live there, and plan to sell within a few years, the daughter-in-law said. "We decided to buy it as an investment for the family," she said.

In September, Tongzhou home prices hit a high, reaching an average $621 a square foot, 17% more than in Beijing overall, according to SouFun, China's largest online portal of property listings.

Prices chilled again after Beijing--along with 20 other cities--imposed fresh property-buying controls in early October. Beijing raised the down-payment requirement for first- and second-home purchases. Though the number of sales in Tongzhou didn't drop, prices fell 39% from the previous month; Beijing prices slipped 3%.

"People become very unhappy with rapid increases in housing prices, so the government feels it is important to dampen the increase," said Li Wei, an economics professor at the Cheung Kong Graduate School of Business in Beijing.

The local government had hoped to feed a real need for housing, not speculative demand, Mr. Li said. "If it is just empty shells there, it just doesn't look very nice," he added.

Tongzhou District's Committee of Housing and Urban-Rural Development, which issued the property restrictions, didn't respond to requests for comment.

Mr. Chen, the blogger, says he avoids posts about housing, out of fear of drawing government attention for spreading information that could drive up prices. Instead, his blog now features reports mostly on the weather, traffic accidents and lost pets.

Lilian Lin contributed to this article.

Write to Dominique Fong at Dominique.Fong@wsj.com

(END) Dow Jones Newswires

November 25, 2016 05:44 ET (10:44 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.