China Home-Price Gains May Presage Policy Tightening

China’s new home prices rose in most cities the government tracks for a third month, adding pressure on leaders to intensify policy-tightening efforts to prevent asset bubbles and inflation as the economy rebounds.

Prices climbed in January from December in 53 of the 70 cities, compared with the previous month’s 54, which was the most since April 2011, according to data today from the National Bureau of Statistics. Ten cities showed declining prices and seven were unchanged.

Shenzhen, which borders Hong Kong, led the gains with a 2.2 percent jump from December, while Beijing and Shanghai also rose, as prices accelerated in the nation’s most expensive markets. The Shanghai Stock Exchange Property Index had its biggest weekly drop since July after Premier Wen Jiabao called for home-purchase restrictions in cities with “excessively fast” price gains.

“We believe the government will tighten policy in 2013 due to concerns over inflation and financial risks,” Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said in an e-mail. “The rebound of property prices will force the government to do so in coming months and money supply growth will decline,” said Zhang, who previously worked for the International Monetary Fund.

An index of property stocks, which dropped 2.1 percent yesterday after Wen’s comments were published, was little changed today. The broader Shanghai Composite Index fell 0.5 percent, while the MSCI Asia Pacific Index was little changed as of 6:15 p.m. in Tokyo.

Inflation Focus

Wen’s remarks and the central bank’s record draining of cash from the financial system this week have signaled the government is increasingly focused on inflation and debt risks. The People’s Bank of China in a December report highlighted the need to control risks as an objective, a possible sign of growing concern that a surge in non-bank lending will lead to defaults.

Ten of 24 economists expect the central bank to raise the benchmark lending rate this year, according to a Bloomberg News survey conducted from Feb. 15 to Feb. 20. The PBOC cut interest rates twice last year

Wen told cities with excessive price gains to “promptly” impose home-purchase restrictions if they haven’t done so already, according to a Feb. 20 statement after a State Council meeting he headed. The statement reiterated that authorities will expand property tax trials and said provincial-capital governments should set annual price-control targets, it said. Li Keqiang is set to replace Wen as premier next month at the annual meeting of China’s legislature.

‘Selective’ Tightening

Prices “are actually going up again, especially in major cities and some second-tier cities,” Nicole Wong, a property analyst at CLSA Asia-Pacific Markets, told Bloomberg Television in Hong Kong today. “We’ll have some more tightening, but this time around the tightening will be quite selective,” targeting a handful of overheating cities, she said.

Home prices rose in 53 cities from a year earlier, compared with 40 cities in December.

In its almost three-year effort to curb property-price gains, the central government has raised down-payment and mortgage requirements, imposed a property tax for the first time in Shanghai and Chongqing and enacted home-purchase restrictions in about 40 cities.

Views are slowly converging that “not only is the easing cycle over, but the acceleration in property prices implies that a tightening cycle may be appropriate by year end,” Annette Beacher, Singapore-based head of Asia-Pacific research at TD Securities Inc., said in a note today.

Real-estate Bubble

In Hong Kong, where home prices have doubled in four years in part due to an influx of buyers from the mainland, the government said today it will double the stamp duty on all properties costing more than HK$2 million ($258,000) amid efforts to prevent a real-estate bubble. The tax will rise to as much as 8.5 percent of the purchase price, Financial Secretary John Tsang said at a briefing.

Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, said authorities will try to limit growth in bank and non-bank credit, resulting in a “gradual decline” in momentum for economic expansion starting in the second quarter.

“The slowdown will be mitigated by a planned easing of fiscal policy aimed at lowering income inequalities,” and gross domestic product will rise 8.5 percent this year, Kowalczyk said in a note. Growth of 7.8 percent in 2012 was the weakest in 13 years.

’Seriously Overvalued’

Elsewhere in Asia, Singapore’s economy grew more than economists estimated last quarter, adding to evidence of a recovery in the region. Taiwan’s gross domestic product rose a more-than-estimated 3.72 percent in the fourth quarter from a year earlier, and the statistics bureau raised its growth estimate for this year to 3.59 percent from 3.53 percent.

Speaking in parliament in Canberra, Reserve Bank of Australia Governor Glenn Stevens endorsed the current level of interest rates and said he’d need to be confident the Australian dollar is “seriously overvalued” before considering intervention to weaken it.

In Europe, Germany’s Ifo business climate index rose more than economists forecast to a 10-month high in February. Canada will report consumer price figures for January. The European Commission cut its estimate for gross domestic product for the euro area this year to a contraction of 0.3 percent from a November estimate for an expansion of 0.1 percent.

Private data in China have also shown a rebounding housing market. Home prices posted the biggest gain in two years by rising 1 percent in January from December, according to SouFun Holdings Ltd., the country’s biggest real-estate website owner.

Residential property sales in China’s 10 biggest cities almost quadrupled to 8.5 million square meters (91.5 million square feet) in the first five weeks of this year from last year, property data and consulting firm China Real Estate Information Corp. said in an e-mailed statement this week.

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