China to Intensify Housing Curbs in Smaller Cities as Price Gains Quicken

China will expand its efforts to curb the growth in residential prices to smaller cities after limiting home purchases in Beijing and Shanghai, according to a summary of a State Council meeting chaired by Premier Wen Jiabao.

The government said so-called second and third-tier cities which have seen excessive price gains should restrict the number of homes each family is allowed to buy, according to the State Council or cabinet yesterday. China’s property stocks fell to the lowest in more than three weeks today.

China is intensifying property restrictions nationwide after developers posted gains in first-half sales and housing transactions climbed 31 percent last month, even after more curbs were added earlier this year. The central bank last week raised interest rates for the fifth time since October.

“If the government doesn’t step up to say anything at the half-year point, the market will interpret it as the government is tolerant to gains in the housing market,” said Yao Wei, an economist at Societe Generale SA in Hong Kong. “China is facing a big pressure from inflation and there’s no way the government will relax property curbs now.”

China’s June housing transactions increased to 499.2 billion yuan ($77 billion), compared with 380.9 billion yuan in the previous month, based on first-half economic data provided by China’s statistics bureau on June 13. Sales in the first half climbed 22 percent to 2.1 trillion yuan from a year earlier, according to the data.

Property Stocks Fall

The measure tracking property stocks on the Shanghai Composite Index fell 1.2 percent to the lowest since June 29 at the 3:00 p.m. close, making it the worst performer among five industry groups on the benchmark. China Vanke Co., the country’s biggest listed developer, dropped 1.8 percent to 8.43 yuan in Shenzhen, while Poly Real Estate Group Co., the second-largest, lost 2.8 percent to 10.6 yuan.

The property boom is shifting from Beijing and Shanghai as government measures to curb the market haven’t kept prices from rising in secondary cities. Urumqi in the northwest and northeastern Dandong posted the biggest gains in May home prices, according to the statistics bureau. The data for June is scheduled to be released on July 18.

Standard & Poor’s on June 15 cut its outlook on Chinese developers, echoing concerns of a property bubble aired by bears such as hedge fund manager Jim Chanos.

China Vanke, the country’s biggest developer, reported last week that sales in the first six months rose 79 percent to 65.7 billion yuan, while Evergrande Real Estate Group said on July 11 that sales more than doubled to 42.3 billion yuan.

‘Proper and Adequate’

Cheung Kong Holdings Ltd. (1), the developer controlled by Hong Kong billionaire Li Ka-shing, said yesterday it is “proper and adequate” for China to impose measures to cool down its property market. Rising home prices run the risk of becoming a social problem, Executive Director Justin Chiu said in Shanghai, where he unveiled three new projects in the city.

“We do hope prices will remain stable, otherwise the government will take more action,” Chiu told reporters. “As a property developer, we don’t want prices to rise too quickly either and want prices to be stable.”

China’s rising inflation, which hit a three-year high in June, also boosted the investment data with higher costs for materials and wages, the statistics bureau said this week.

“The property policies are at a critical moment,” the State Council said in the report. “We must strictly uphold the direction of the curbs and won’t ease the tightening measures.”

Rental Curbs

June home prices climbed 0.4 percent from May, rising for a 10th straight month, according to SouFun Holdings Ltd. (SFUN), the country’s biggest real estate website. The increase was driven by smaller cities, while prices in larger ones including Beijing and Shanghai either posted slower gains or declines from May, SouFun said.

China will also curb gains in housing rents, the State Council report said. The government will ensure the construction of 10 million units of social or affordable housing begins by the end of November, according to the report.

“If they don’t continue to tighten the market, it will rebound soon,” said Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG, citing this week’s property sales data. “The property curbs haven’t showed positive effects.”

--Bonnie Cao, Liza Lin. Editors: Linus Chua, Tomoko Yamazaki

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at +86-21-6104-3035 or bcao4@bloomberg.net; Liza Lin in Shanghai at +86-21-6104-3047 or llin15@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.