China House Prices Climb as Sales, Investment Surge

By Bloomberg News

Sept. 10 (Bloomberg) -- China’s house prices in the nation’s 70 biggest cities rose at the fastest pace in 11 months on record lending and climbing confidence.

House prices increased 2 percent in August from a year earlier, double the gain in July, according to a National Bureau of Statistics report on its Web site today. Sales and investment in property development accelerated in the first eight months of the year from the seven months through July, the bureau said.

Shenzhen and Jinhua, cities in eastern coastal provinces, led the gains as a rebound in investment and sales helps to cement a recovery in the world’s third-biggest economy. At the same time, surging prices may reinforce concern that asset bubbles may be inflating in the wake of $1.1 trillion of lending in the first seven months of the year.

“The continued rise in asset prices reflects the recovery in investor confidence,” said Sherman Chan, an economist at Moody’s Economy.com in Sydney. “Policy makers certainly need to keep a close eye on asset prices in the near term and act fast in preventing bubbles, which could derail the economy.”

Shanghai’s property index was the only sub-index on the city’s stock exchange to rise today, climbing 1.1 percent as of the 11:30 a.m. local time break in trading, led by Poly Real Estate Group Co.

House sales jumped 69.9 percent in the first eight months of 2009 from a year earlier to 2.35 trillion yuan ($344 billion), the bureau said. That was up from a 60 percent gain in the first seven months. By floor area, sales climbed 42.9 percent, up from 37 percent.

Property Investment Accelerates

Investment in property development grew 14.7 percent during the period, the bureau said today. That was an increase from 11.6 percent.

“Property investment will grow by 20 percent this year, and it will continue to be a driving force for China’s growth this and next year,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing.

Central bank adviser Fan Gang said last week that property- investment growth may rebound to about 30 percent next year.

The government’s 4 trillion yuan stimulus package and the credit boom helped the economy to accelerate in the second quarter from the weakest pace in almost a decade. August economic data is due to be released tomorrow.

In Jinhua, house prices rose 6.9 percent in August from a year earlier. In Shenzhen, the gain was 6.5 percent. Year-on- year, 15 of 70 cities posted declines. Month-on-month, none fell.

Sliding Stocks

A slide by the Shanghai Composite Index has reduced concerns about a bubble in stocks. The benchmark fell 0.9 percent as of the trading break, extending its decline from this year’s Aug. 4 peak to 16 percent. The measure is still up 60 percent for the year.

Risks of property bubbles may show up in individual cities, rather than across the nation as a whole, according to economist Chan.

“Going by recent government policy direction, which aims to promote balanced development, the central and western regions should show the sharpest improvement in investment,” said Chan. “However, the latest breakdown suggests that the already- saturated eastern region also recorded a sharp increase, which could well be driven by a return of speculative investment.”

China’s gross domestic product may increase 9.5 percent in 2010 after an 8.3 percent gain in 2009, the smallest in eight years, according to a Bloomberg survey of 22 economists conducted the week ending Aug. 28.

--Li Yanping. Editors: Paul Panckhurst, John McCluskey.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net