BT : China's property stocks jump despite new curbs

Business Times - 01 Oct 2010

China's property stocks jump despite new curbs

Rally likely to be short-lived because of sector's cloudy outlook: traders

(SHANGHAI) China's property shares unexpectedly soared yesterday, a day after the government announced fresh measures to subdue bubbly real estate prices.

Shanghai's property sub-index closed up 3.9 per cent, with one major developer, Poly Real Estate Group Co Ltd, climbing 8.9 per cent.

Traders said investors were jumping back into the market after a slump in property shares since mid-April, in response to a clampdown on real estate speculation.

But they cautioned that the rally was likely to be short-lived because of a cloudy outlook for the sector.

Surging property prices that are unbalancing the economy have become a serious headache for the government and pose a potential threat to social stability. Prices are beyond the reach of large segments of the population.

Following up on its April campaign, Beijing on Wednesday instructed banks to demand a downpayment of at least 30 per cent from all mortgage applicants and to restrict loans to buyers of third homes.

'The market was expecting negative news on new property controls, so now that the information is out, property companies like Vanke which have been in a continuous slump are able to gain,' said Ren Chengde, an analyst at Galaxy Securities in Shanghai.

Shanghai's stock market, one of the world's worst-performing bourses, gained 11 per cent in the third quarter but is still down nearly 21 per cent so far this year. China's restrictions on bank lending and the property market have taken a toll despite robust economic growth.

Industry experts said the government had responded to a rebound in property transactions and prices, worrying that they could set the stage for a new flurry of speculative buying.

'The new steps were taken at the perfect time, when potential buyers are hesitating whether to enter the market,' said Liu Yuan, a senior research manager at the Centaline Group, a leading domestic property service and research institution.

Property companies helped the Shanghai market close up 1.7 per cent at a three-week high.

The country's largest listed developer, China Vanke Co Ltd jumped 7.6 per cent, while Gemdale Corp rose 5.3 per cent.

China's property inflation slowed to 9.3 per cent in the year to August, down from a peak of 12.8 per cent in April. But real estate investment has remained buoyant, with growth picking up to 34.1 per cent in the year to August from 33 per cent in July.

'These gains may just be a short-term burst. I expect property shares could gain a maximum of 10-15 per cent,' said Zheng Weigang, a senior trader at Shanghai Securities. -- Reuters

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