July 10 (Bloomberg) -- China’s urban home prices rose for the first time in seven months, adding to evidence that record bank lending is driving a recovery in the world’s third-largest economy.

Prices in 70 major Chinese cities gained 0.2 percent in June from a year earlier, the National Development and Reform Commission said today on its Web site. Home values increased 0.8 percent from May, the fourth straight monthly gain. The China Se Shang Property Index of 24 real-estate companies rose 1.6 percent, beating the 0.3 percent drop in the benchmark.

“China’s property market is reviving and real estate investment may rebound by 20 percent in the second half of this year, backing economic recovery,” Lu Ting, an economist at Bank of America-Merrill Lynch, said in Hong Kong.

With exports plunging, China is driving growth by lifting domestic consumption of cars, appliances and housing with a 4 trillion yuan ($586 billion) stimulus and higher bank lending. Real-estate investment grew 9.9 percent in the first half from a year ago, the National Bureau of Statistics said today.

Property sales rose 32 percent by floor space and 53 percent by value, the report said. New loans rose almost fivefold in June from a year earlier to 1.53 trillion yuan, according to preliminary calculations, the central bank said July 8.

Poly Real Estate Group Co. , China’s second-biggest developer by market value, rose 2 percent to 30.32 yuan in Shanghai, just lower than the 18-month closing high of 30.51 yuan reached on July 3. China Vanke Co., the country’s biggest builder, rose 0.1 percent to 14.27 yuan.

Higher Sales

Part of the surge in June lending likely reflects mortgage loans, Wang Qian, an economist with JPMorgan Chase & Co. in Hong Kong, said this week.

First-half lending rose to a record 7.37 trillion yuan, more than three times the amount a year earlier. Chinese banks have extended 47 percent more loans this year than the central bank’s minimum target for 2009. Passenger-vehicle sales jumped 48 percent last month, the most since February 2006, according to industry figures yesterday.

Rising home prices may prompt the government to damp lending to cool the property market. Banks in Hangzhou, the capital of eastern Zhejiang province, are tightening requirements for second-home mortgages, the Shanghai Securities News reported July 7, without saying where it got its information.

“In Hangzhou, there’s been a 15 percent to 20 percent price appreciation since last December,” David Ng, a Hong Kong- based analyst at Royal Bank of Scotland Group Plc, said by phone today. The tightening of mortgage requirements in Hangzhou could indicate prices have risen too much, he said.

“The speed of price appreciation is raising alarm among some authorities,” said Ng, adding that most first-tier cities have posted increases of more than 10 percent this year.

Hangzhou’s home prices rose 0.7 percent in June from May, and were 0.2 percent lower from a year earlier, the NDRC figures showed today.

To contact the reporter for this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net

Last Updated: July 10, 2009 06:18 EDT