China Home-Price Gains Signal Growth Challenge for Li

China’s new-home prices rose last month in 68 of 70 cities tracked by the government, indicating Premier Li Keqiang will need to maintain efforts to cool the property market even as economic growth slows.

Increases in Guangzhou, Beijing and Shanghai were the biggest on a yearly basis since a change in data methodology in January 2011, a report from the National Bureau of Statistics showed May 18. Property stocks climbed today after the number of cities showing gains matched the level in March, which was the highest since September 2011.

China’s policy makers are trying to avoid property bubbles and make homes more affordable while bolstering an economy that lost steam in the first quarter. Expanding a campaign against housing speculation could choke off real-estate development that is helping counter a slowdown in manufacturing investment and supporting demand for steel, cement and household goods.

“The government faces a dilemma,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “They have to make a choice between property prices and economic growth.”

China Vanke Co. and Poly Real Estate Group Co., the nation’s biggest listed developers, climbed today, with the Shanghai Composite Index rising 0.3 percent as of 10:37 a.m. local time.

Efforts to cool the property market coincide with rising labor costs that threaten to erode China’s attractiveness as a world manufacturing hub. The average annual wage for urban private company employees jumped 14 percent in 2012 from a year earlier, the statistics bureau said last week. Economic growth of 7.7 percent in the first quarter trailed analyst estimates.

Tighter Rules

China’s State Council stepped up a three-year campaign to cool home prices in March. Measures included raising down-payment requirements and interest rates for second-home mortgages, ordering stricter enforcement of a 20 percent capital gains tax on sales and pledging to punish developers found hoarding land.

A survey of 20,000 urban households by the central bank released the same month showed 68 percent found property prices too high, the most since the final quarter of 2011.

“Expectations of home-price increases haven’t been fundamentally eliminated,” Liu Jianwei, a senior statistician at the NBS said in a statement after the data release. “The strict implementation of property controls are still at a crucial stage.”

Elsewhere in Asia, Thailand today reported a slower-than-estimated 5.3 percent economic expansion in the first quarter, boosting the case for the central bank to add to interest-rate cuts around the region.

U.K. Property

In the U.K., home sellers raised asking prices for a fifth consecutive month in May, property-website operator Rightmove Plc said. Italy will report industrial orders and sales for March. In the U.S., the Federal Reserve Bank of Chicago will release its National Activity Index for April.

In China, the southern city of Guangzhou recorded the biggest increase in new-home prices, with a 13.5 percent jump from a year earlier. Beijing prices climbed 10.3 percent and those in Shanghai rose 8.5 percent.

At the same time, the latest data showed that monthly gains moderated, a sign that curbs are starting to bite.

The increase in new-home prices slowed month-over-month in 40 out of the 70 cities, compared with 25 in March, NBS data show. In Beijing, the pace slowed for a second month to 1.4 percent, the weakest gain in four months. In Shanghai, prices rose 1.7 percent, down from 2.7 percent in March and the first moderation since July 2012.

‘Strong’ Demand

“Underlying demand is so strong that it’s very hard to control prices,” Chris Brooke, chief executive officer for China at CBRE Group Inc., said in an interview in Beijing on May 17. “The government needs to work on the supply side, making sure there’s enough land and develop the private rental and affordable housing markets, and looking at something like an occupation tax to impose a cost on holding empty property.”

The official Xinhua News Agency reported last week that the government is studying “long-term” measures to control property prices including land finance reform and increasing land supply.

Investment in real-estate has picked up even as the government tightened controls on purchases, helping support economic growth as spending by manufacturers moderates.

Property investment growth rebounded to 23.2 percent in April year-on-year from 17.6 percent in March and new home starts rose 14.5 percent after dropping 20.2 percent the previous month, according to Bank of America Corp.

Investment in manufacturing eased to a 17.9 percent pace in April from 19.9 percent in March, according to Societe Generale SA calculations.

— With assistance by Bonnie Cao, and Nerys Avery

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