China Developers Rise as CPI Raises Easing Hope: Shanghai Mover

China Developers Rise as CPI Raises Easing Hope
Cranes operate on a China Vanke Co.'s construction site in the Fangshan district on the outskirts of Beijing, China. Photographer: Keith Bedford/Bloomberg

China’s property shares rose to the highest in a year after inflation eased to a 29-month low, prompting investor optimism that Premier Wen Jiabao will relax economic policies to boost growth.

The gauge tracking developers on the Shanghai Composite Index rose for a third consecutive day, adding 0.6 percent to the highest since July 2011 as of 10:52 a.m. local time, the only industry group to gain among five on the benchmark. China Vanke Co., the biggest listed developer on the mainland, climbed 1.7 percent to 9.81 yuan in Shenzhen, set for the highest since November 2010. Poly Real Estate Group Co., the second largest, added 2.2 percent to 13.1 yuan, the highest in 2 1/2 years.

China’s consumer price index slowed in June, raising expectations of further policy easing after the central bank cut its benchmark interest rates last week for the second time in a month. Wen said over the weekend that downward pressure on the economy is still “relatively large” and the government will intensify fine-tuning of policies even as measures taken since April are helping stabilize a slowdown.

“The slower inflation actually gives the government more room to ease policies,” said Tu Lilei, a Shanghai-based property analyst at Haitong Securities Co. “The premier said what he had to say about controlling property prices, but he actually didn’t indicate he will issue new curbs. This is not bad news for developers.”

Wen’s weekend remarks came after China’s new home prices rose for the first time in 10 months in June, according to SouFun Holdings Ltd., the nation’s biggest real estate website owner. Local governments that loosened property curbs or covered up the loosening of measures on residential real estate must be stopped, while restricting speculative demand and investment in property must be made a long-term policy, the official Xinhua News Agency reported yesterday Wen as saying during an inspection tour of eastern Jiangsu province.

Developers last week reported rising sales in June. China Vanke said contracted sales were 13.3 billion yuan ($2.1 billion), a 24 percent jump from May. Longfor Properties Co. reported that June sales rose 36 percent from May.

“We do not expect the government to introduce tougher property policies unless home prices see a meaningful rally,” wrote Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research, in a note to clients today.

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