China’s home prices rose for the eighth consecutive month in April, Soufun Holdings Ltd. said today, defying government steps to cool prices.

The latest gain underscores the challenge facing Premier Wen Jiabao, who said May 1 that the nation is “determined” to bring down housing prices in some cities to a “reasonable” level. Home prices rose 0.4 percent in April from March and climbed in 77 of 100 cities tracked by the nation’s biggest real-estate website owner.

Wen said the government is committed to bringing down some cities’ property prices during a visit to a construction site in Beijing, the official Xinhua News Agency reported yesterday. The comments may help correct a misconception in the stock market that the government only wanted to curb increases, according to Credit Suisse Group AG.

“We still expect more tightening measures,” Credit Suisse analysts led by Jinsong Du wrote in an e-mailed note today, noting that Wen’s comment was the first time he has committed to lowering some prices. “We continue to prefer taking profits on China property sector, especially after the 25% sector rally in the past one and a half months.”

The measure tracking property stocks on the Shanghai Composite Index closed 0.3 percent up, extending this year’s gain to 8.7 percent, after falling as much as 1.2 percent. China Vanke Co., the nation’s biggest developer by market value, rose 0.2 percent to 8.50 yuan in Shenzhen.

“Reasonable Level’

“We are determined to bring down the high-flying housing prices in some cities and make sure that the prices of housing can return to a reasonable level,” Xinhua cited Wen as saying. “Our determination is unswerving that special care is given to needy and low-income families and to make sure they can afford housing.”

Average home values climbed to 8,773 yuan ($1,349.70) a square meter (10.76 square feet) in April, according to Soufun, which started tracking monthly prices in July last year. Home sales fell an average 25 percent last month. Prices increased 0.6 percent in March from February.

The gain in April was the slowest in eight months after the government raised the minimum down payment for second-home purchases this year and levied taxes on residences in Shanghai and Chongqing. Beijing and Guangzhou imposed restrictions on housing purchases in February, while the central bank raised interest rates twice this year.

‘Unlikely to Fall’

“The government’s policy is working, but home prices nationwide are unlikely to fall this year,” Larry Hu, director of Knight Frank LLP’s residential department in Shanghai, said before today’s release. “‘There is a bubble in China’s real estate market, because many people can’t afford homes here.”

About 40 cities said in March they will cap new home prices below annual economic and disposable per-capita income growth or keep them steady following the central government’s measures to rein in housing values.

Wen’s visit to an affordable housing construction site during the Labor Day holiday coincided with President Hu Jintao’s comments during a trip to Tianjin between April 29 and May 1, when he urged the development of public rental housing for low-income people. Local governments should continue to increase capital investment and prioritize the allocation of land for these projects, Xinhua reported yesterday, citing Hu.

Affordable Housing

China’s massive construction of low-income homes can boost supplies and stabilize expectations in the housing market like a “sedative,” Vice Premier Li Keqiang said, according to a summary of a speech posted last month on the website of Qiushi, the official Communist Party magazine.

The government has prepared further tightening measures for the nation’s property market to prevent an “unreasonable rebound” in housing prices during the May 1 Labor Day holiday, the China Business Journal reported in its May 2 edition, without saying where it got the information. The measures include increasing the minimum down payments on second-home mortgages in selected regions.

China is studying ways to control developers’ profits to keep home prices at a reasonable level, the China News Service reported April 27, citing the National Development and Reform Commission. The northern region of Ningxia will cap the profit margin for residential homes at under 12 percent, and limit the selling price of properties it deems excessive, according to a statement on its website April 29.

Downturn Scenario

A “more plausible” scenario is for China’s property prices to fall with a simultaneous drop in sales volumes, which then start to rise again to approach or even exceed pre-downturn levels within 12 months to 24 months as demand returns on low real interest rates and household leverage, Fitch Ratings analysts Ying Wang and Kalai Pillay said in a report dated May 2.

Then, “large, geographically diversified, mid-end and mid- to-high-end-focused developers such as Evergrande Real Estate Group Ltd. may take the opportunity to acquire good quality land banks and/or projects at a low cost from weaker competitors in distress,” the analysts wrote.

Home prices in Shanghai rose 0.32 percent last month from March and jumped 2.03 percent from a year earlier, while home prices in Beijing dropped 0.14 percent on month and climbed 4.41 percent on year, Soufun said.