Forte, Property Stocks Fall on China Price Curbs

Shares of Chinese developers including Shanghai Forte Land Co. and Beijing Capital Land Ltd. (2868) plunged after the government said it plans to cool surging home prices.

China will restrict land for expensive housing and offer more loans for low-cost homes to ``correct'' distortions in the property market, the State Council, or cabinet, said in a statement posted on the government's official Web site last night.

Premier Wen Jiabao is under pressure to rein in home prices that jumped 15 percent in the first quarter in Beijing alone, prompting complaints that property has become unaffordable for many people. The government is also concerned that soaring prices may lead to a collapse that could cause a sudden slowdown in the world's fastest-growing major economy.

``The government tried to rein in property prices last year and obviously this goal has not been met,'' said Zhao Qiang, an analyst at China Everbright Securities Co. in Shanghai. ``Prices will continue to soar if nothing is done.''

Shares of Shanghai Forte, the largest mainland-based developer listed in Hong Kong by market value, slumped 5.1 percent to HK$3.275 at 3:49 p.m. local time after losing as much as 7.3 percent. Beijing Capital Land, which develops high-end housing in Beijing, dropped 5.3 percent to HK$2.70.

Shanghai Lujiazui Finance & Trade Zone Development Co. fell 1.3 percent to 7.73 yuan on the Shanghai Stock Exchange and Shanghai Shimao Co. lost 1.9 percent to 5.12 yuan. China Vanke Co., the biggest mainland-listed developer, closed up 1.6 percent at 6.18 yuan on the Shenzhen Stock Exchange, after declining as much as 5.1 percent earlier.

`Too Fast'

The government must do more to cool property prices and make it easier for people to afford low- to moderate-cost housing, the State Council said, citing a meeting chaired by Wen. The statement proposed a six-point plan including tax measures and increased supervision to curb use of land for luxury housing.

``Housing prices are still rising too fast in some major cities,'' the statement said. ``Order has yet to be restored in the property market.''

The statement echoed previous expressions of concern about rising real estate values and didn't offer specifics such as how and when taxes will be changed. The policies will aim to prevent developers hoarding land and control demolition of old housing to ease demand for new homes, according to the statement.

``Local governments will probably issue measures, including raising down payments for purchase of a second home to at least 40 percent of its value from a minimum 20 percent'' after the announcement, said Li Huiyong, an economic analyst at Shenyin Wanguo Research and Consulting Co. in Shanghai.

Investment Boom

The People's Bank of China on April 28 raised its one-year lending rate to 5.85 percent from 5.58 percent, the first increase since October 2004, to restrain investment in real estate, factories and other fixed assets.

Fixed-asset investment rose 29.6 percent in the first four months from a year earlier, the Beijing-based National Bureau of Statistics said today. Investment in real estate development, which accounts for almost a quarter of the total, climbed 21.3 percent to 413.1 billion yuan ($51.6 billion).

China property stocks surged this year on expectations that rising incomes and economic growth will spur demand. China's economy grew 10.2 percent from a year earlier in the first quarter. Shanghai Forte shares have gained 24 percent, Beijing Land is up 18 percent and Vanke has jumped 43 percent.

Property prices rebounded this year as the impact of new taxes and higher mortgage rates imposed in 2005 wanes. Average home prices in Beijing jumped 14.8 percent in the first quarter from a year earlier, according to the city government. Prices in Shenzhen, a city in southern China, and in Dalian in the northeast both rose by more than 10 percent, government data showed.

Loan Growth

China has restricted lending for property since April 2003 out of concern that prices and investment were rising too fast, raising the risk of a collapse that could drive up bad loans at banks and derail economic growth.

The government aims to cool the market because ``soaring'' prices have become a focus of public complaints, Zhu Zhixin, deputy commissioner of the National Development and Reform Commission, said in Beijing on March 6. Rising property prices threaten China's social and financial stability, the State Council said in a circular last year.

A surge in bank lending has fuelled the jump in investment this year. New yuan lending more than doubled to 317.2 billion yuan ($39.6 billion) in April from 142.2 billion yuan a year earlier, the central bank said on May 15.

``Property demand, fuelled by excessive liquidity and rapid economic growth, will far outstrip supply in the next few years,'' said Wang Jianyang, a Hong Kong-based analyst at BOC International Group. ``The government has many cards up its sleeve, but they will only temporarily stabilize prices. The long-term trend is still upward.''

To contact the reporter for this story: Jianguo Jiang in Shanghai at jjiang@bloomberg.net; 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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