China’s property prices rose at the slowest pace in 10 months in October after the government raised interest rates and expanded measures to limit the risk of asset bubbles in the world’s fastest-growing major economy. Home prices in 70 cities climbed 8.6 percent from a year earlier, the statistics bureau said in a statement posted on its website today. That’s slower than the 9.1 percent increase in September and the 8.9 percent median estimate in a Bloomberg News survey of six economists. Price gains also slowed to 0.2 percent from September after increasing 0.5 percent last month. Property shares led declines in Chinese stocks today as the data showed government measures, including suspending mortgages for third-home purchases and a pledge to speed up trials of property taxes, may not be enough to ease gains in home prices. The central bank also raised interest rates last month for the first time in three years. The “rate hike in October has had a quick impact on the Chinese property market,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “House price inflation is moving in the right direction over the last few months, but officials will likely want to see more progress, suggesting that the policy bias remains in favor of more rate hikes.” The Shanghai Composite Index measure tracking real estate stocks dropped 2.8 percent at the 3 p.m. close, the most in three weeks. China Vanke Co., the country’s biggest developer, dropped 3.7 percent to 9.15 yuan in Shenzhen, and rival Poly Real Estate Group Co. declined 4.6 percent to 13.80 yuan. Rising Investment Sales volume fell 11 percent in October from the previous month, while the value of transactions dropped 7.7 percent. China’s property investment rose 37 percent to 455.8 billion yuan ($69 billion) in October from a year earlier, and increased 37 percent to 3.81 trillion yuan in the first 10 months. Beijing’s property prices rose 0.1 percent from the previous month and those in Lanzhou in northwest China climbed 2.4 percent. Only eight out of the 70 major cities monitored by the government posted a drop in property prices, including a 0.1 percent decline in Shanghai from September, the data showed. “In China, a residential property is now the preferred savings vehicle, because it provides a better hedge against inflation,” Michael Kurtz, head of Asian strategy at Macquarie Group Ltd., said in an interview with Bloomberg Television in Hong Kong. “As long as nominal interest rates remain as low as they are, Chinese households are going to continue to favor property over bank deposits as a form of savings.” Further Strength Private sales data indicated further strength in October sales. In Shanghai, home prices rose 3.1 percent from September, according to UWin Real Estate Information Services Co. Shimao Property Holdings Ltd., a Shanghai-based developer, reported a 15 percent increase in sales value in October from the previous month, while China Vanke said October contracted sales more than doubled. “Demand for properties remains strong despite many tightening measures,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. “Looking ahead, we expect China’s property prices to soften further on rising funding costs, increasing supply of economically affordable housing, and the strong government resolve to cool the sector next year.” More Restrictions China ordered some lenders including Bank of Communications Co. to increase their reserve ratios by 50 basis points, effective on Nov. 15, said a person with direct knowledge of the situation. A basis point is 0.01 percentage point. People’s Bank of China declined to comment. The State Administration of Foreign Exchange will introduce new rules on currency provisioning and tighten management of banks’ foreign-debt quotas, the regulator said in a statement yesterday, forcing banks to hold more foreign exchange and strengthen auditing of overseas fund raising to curb hot-money inflows that may inflate asset bubbles. “The rising tendency of housing prices has been curbed,” said Lu Zhengwei, a Shanghai-based senior economist at Industrial Bank Co. “If the government is simply content with curbing rising home prices, it has achieved its goal. But it’s certainly far from satisfactory for buyers.” Policy makers may introduce more measures in the fourth quarter amid signs of a price recovery, according to Nomura Securities Co. The likely policies include a property tax and the enforcement of the so-called land added-value levy in the “overheated cities,” the brokerage said in a Nov. 4 report. The introduction of a property tax may cause housing prices to drop between 15 percent and 20 percent, Citic Securities Co. said Nov. 3. The tax may affect economic growth by 0.48 to 0.64 percentage points by slowing real-estate investment, the brokerage said. --Bonnie Cao, Huang Zhe, John Liu. With assistance from Li Yanping in Beijing and Susan Li in Hong Kong. Editors: Andreea Papuc, Linus Chua To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at +86-21-6104-3035 or bcao4@bloomberg.net; Huang Zhe in Beijing at +86-10-6649-7552 or zhuang37@bloomberg.net To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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