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China to Curb Property Speculation, Add Low-Cost Homes

Wen Jiabao, China's prime minister
Wen Jiabao, China's prime minister. Photographer: Pankaj Nangia/Bloomberg

Feb. 2 (Bloomberg) -- China’s Premier Wen Jiabao pledged to curb property speculation and add more affordable housing after home prices rose last month as buyers defied government measures.

China’s January home prices posted their biggest month-on-month gain in six months, according to SouFun Holdings Ltd. The government last week raised second-home down payments, told local governments to set price targets on new properties and introduced taxes for residential properties in Shanghai and Chongqing. The curbs followed two interest rate increases in the past four months and a ban on third mortgages.

The country needs to “resolutely control the property market” and “maintain stable housing prices,” Wen said in his Lunar New Year speech yesterday posted on the website of the state-run People’s Daily newspaper, reiterating comments on Jan. 18 ahead of last week’s curbs.

Residential prices in all 100 cities tracked by SouFun climbed 1 percent last month from December, with average values increasing to 8,645 yuan ($1,312) a square meter. The gain followed a 0.9 percent advance in December’s home prices, the nation’s biggest property website owner said yesterday.

The January measures “won’t reverse the overall upward trend” in the property market, said Michael Cole, a Shanghai-based research director at Colliers International’s East China division. “For prices to come down, the government needs to provide alternative investment channels for investors and it will take some time for its financial system to mature sufficiently for this to take place.”

China’s home prices gained for a 19th month in December, rising 6.4 percent from a year earlier, the statistics bureau said last month. The government’s January home price data is expected in mid-February.

Property Stocks

The measure tracking property stocks on the Shanghai Composite Index lost 28 percent in 2010, the most among five industry group on the benchmark gauge. The property index climbed 3 percent this year, compared with the 0.3 percent drop in the key measure.

Wen said on Dec. 26 the government aims to add more than 10 million low-cost homes this year, compared with 5.8 million for 2010. The government emphasized building social housing at its annual central economic meeting in December that set plans for 2011.

China International Capital Corp. cut its 2011 forecast for the nation’s property transaction volume after the government’s latest curbs. Transaction volumes are expected to drop 10 percent from a year earlier to 940 million square meters (10.1 billion square feet) in 2011, compared with an earlier estimate for a 5 percent increase, analyst Bai Hongwei wrote in a report this week.

New lending to developers and mortgage loans may both fall about 30 percent in 2011, according to the report.

‘Abnormal’ Credit

Wen last month pledged to counter “abnormal” credit growth and “ensure overall price levels are basically stable” in the first quarter after speculation that lending may have surged this year.

Goldman Sachs Group Inc. said Jan. 14 that lending may have reached 1 trillion yuan in the first two weeks of 2011, citing checks with commercial banks. That would compare with 481 billion yuan in December.

China’s property market may be heading into a bubble as the economy’s reliance on real estate reaches a level close to the housing peaks in the U.S. and Japan, according to Citigroup Inc.

China’s property prices will fluctuate within a 10 percent range this year, said Shen Minggao, Citigroup’s China research head, adding that the country “may only avoid the bubble burst if current property tightening is effective.”

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

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

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