Chinese Property Stocks Fall After China Raises Rates

Shares of China Vanke Co. and other Chinese property developers fell, after yesterday's decision by the central bank to raise the benchmark lending rate and further restrict lending.

Vanke, China's biggest listed developer, fell 0.19 yuan, or 3 percent, to close at 6.24 yuan in Shenzhen. Shanghai Liujiazui Finance & Trade Zone Development Co., a developer in Shanghai's financial district, dropped 0.15 yuan, or 1.9 percent, to 7.85. The benchmark Shanghai Composite Index rose 1.7 percent.

The People's Bank of China raised the one-year lending rate to 5.85 percent from 5.58 percent effective today to help cool investment in real estate, factories and other fixed assets that jumped 29.8 percent in the first quarter. The central bank also said lending is rising too fast and urged banks to rein in expansion, in a separate statement on its Web site last night.

``The move has increased borrowing costs for both home buyers and developers, and its short-term impact is obvious,'' said Zhao Qiang, a Shanghai-based analyst at Everbright Securities Co. ``More government measures may follow to cool the industry. It's time to sell the stocks.''

China's average property prices continued to gain in the first quarter, rising 5.5 percent from a year earlier, even as the government stated to cool a property boom in 2004. The government will charge fees on idle land, to prevent developers from hoarding it and increase the supply of properties, the Shanghai Securities News reported today, citing a notice from the Ministry of Land and Resources.

Shanghai Shimao Co., which is owned by property tycoon Xu Rongmao, lost 0.21 yuan, or 4.7 percent, to 4.3. Shanghai New Huangpu Real Estate Co. fell 0.19 yuan, or 3 percent, to 5.68.

The impact of the interest-rate increase is more likely to be felt at the low- and middle-end of the market, while demand for properties is still very strong in most Chinese cities, analysts including Peter Churchhouse said.

``It may dent the market but it won't kill it at all,'' said Churchhouse, a fund manager at Lim Advisors Ltd. In Hong Kong. ``Interest rates will hurt, but up to 30 percent of new launches are being bought with cash. That's pretty telling.''

To contact the reporter on this story: Samuel Shen in Shanghai sshen3@bloomberg.net

To contact the editor responsible for this story: Bruce Grant in Hong Kong at bruceg@bloomberg.net

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