China Orders More Cities to Restrict Housing Purchases

China told local authorities to “decisively” curb real estate speculation and take steps to rein in the property market after prices rose the most in two years last month. Share of developers declined.

Cities that have had “excessively fast” price gains should “promptly” impose home-purchase restrictions if they’ve not done so already, according to a statement yesterday after a State Council meeting headed by Premier Wen Jiabao. Provincial capitals and municipalities reporting directly to the central government should publish annual price control targets to keep new-home costs “basically stable,” according to the statement.

The nation’s property market rebounded starting in the second half of last year as demand from buyers concerned that prices were rising again defied the central government’s commitment to maintaining property controls. Home prices rose 1 percent last month from December, the most since January 2011, according to data from SouFun Holdings Ltd., the nation’s biggest property website.

“Investors are still worried that there are new tightening policies to come out in the next couple of months,” said Tian Shixin, a Shanghai-based property analyst at BOC International China Ltd., in a phone interview. “What Wen said yesterday was more or less a restatement of the current policies, but people care more about what the new premier will do on the property market.”

Li Keqiang is set to replace Wen Jiabao as premier next month at a meeting of China’s legislature.

Developers Fall

The Shanghai Stock Exchange Property Index, which tracks 24 developers, fell to the lowest in almost a month, dropping 2.1 percent at the close of trading, while the benchmark Shanghai Composite Index lost 3 percent. The property gauge has gained 21 percent in the past year, compared with the 2.3 percent decline by the stock benchmark.

China needs to maintain the “consistency and stability” in its property curbs because home supplies will remain tight in large cities as the nation’s urbanization accelerates, the government said in yesterday’s statement.

Cities that already have home-purchase limits will need to improve such measures “according to uniform requirements,” the government said, without elaborating.

The government also will expand property tax trials, it said, without giving more details.

Tougher Policies

Still, the government’s statement yesterday was weaker than market expectations because it lacked new measures and can’t reverse price increases, according to CEBM Group, an advisory company.

“If there’s no tough policies such as suspending second mortgages or raising taxes on existing-home transactions, with tightness in the near-term demand and supply unchanged the trend of rising home prices can hardly change,” Luo Yu, a Shanghai-based analyst at CEBM, wrote in an e-mailed note yesterday.

In the eastern coastal city of Quanzhou, prices rose 4 percent in January from the previous month, while in central Zhengzhou they advanced 3.7 percent, the two fastest increases, according to SouFun.

The government’s almost three-year effort to curb property prices has included raising down-payment and mortgage requirements, increasing construction of low-cost social housing and restricting home purchases in about 40 cities. Authorities also imposed a property tax for the first time in the cities of Shanghai and Chongqing.

The measures have helped stabilize the property industry. Standard & Poor’s yesterday raised its outlook for Chinese residential developers to stable from negative, saying the companies are facing “reasonably favorable” credit and operating conditions in the next six to 12 months.

Developers Fall

Chinese developers were able to improve their liquidity at favorable costs because funding channels reopened, the credit ratings company said a report. S&P said it didn’t expect the central government to “drastically” tighten or loosen controls on the property market.

Property companies, which had been struggling with liquidity as home prices declined, have been coming to the dollar-bond market to secure cheaper funding costs before any further rises in U.S. Treasury yields push up the rates they pay to sell dollar debt in Asia.

Glorious Property Holdings Ltd., controlled by Chinese billionaire Zhang Zhirong, signaled yesterday it’s considering selling dollar-denominated debt, which would make it the 24th developer from Hong Kong and China to sell dollar debt this year, after issuers raised $9.2 billion in January, data compiled by Bloomberg show.

Firm Tightening

The Beijing municipal government will hold meetings today with developers to discuss possible tightening measures, such as raising transaction taxes including stamp duties, Shanghai Securities News reported yesterday, citing a person from the local housing commission who wasn’t identified.

Wen’s statement “reinforced the central government’s determination on maintaining a firm tightening stance on the sector,” Kenneth Tsang, a property analyst Sanford C. Bernstein H.K. Ltd. in Hong Kong, said in an e-mailed statement today. “Signs of recent return of investors will potentially act as a trigger for stricter execution and the strengthening or broadening of current administrative measures.”

Before it's here, it's on the Bloomberg Terminal.