China May Home Prices Drop in Fewer Cities as Demand Returns

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China’s home prices fell in fewer cities for a third month as buyers’ confidence returned after the government removed some property curbs and interest rates fell.

New-home prices declined in May in 41 of the 70 cities tracked by the National Bureau of Statistics, compared with declines in 47 in April, according to data on Thursday. They rose in 20 cities, two more than in April, led by gains in the first-tier hubs, including Shanghai and Beijing.

China eased mortgage policies and down-payment requirements for some homebuyers at the end of March, adding to easing measures since September to aid an industry that has been weighing on economic growth. Home sales rose for the first time this year in April and extended gains in May.

“The trend of a recovery has been established for sure,” said Du Jinsong, a Hong Kong-based analyst at Credit Suisse Group AG. “There’s no question that trend will last throughout this year.”

New-home prices in Shenzhen in the south led gains in first-tier cities in May, rising 6.6 percent from a month earlier, the fastest pace since January 2011 when the government changed the way it compiles the data. They advanced 2.2 percent in Shanghai, the steepest since March 2013, and increased 1.1 percent in Beijing, the fastest since July 2013. They gained 1.4 percent in Guangzhou.

Uncertain Nationwide

While home prices in first-tier cities may keep rising in the coming months driven by higher land costs and strong demand, prices in smaller cities will probably stay flat, said Ding Xiao, a Beijing-based analyst at UBS Group AG.

“The 70-city average price will likely see some slight improvement on a month-on-month basis through the remainder of the year,” he said. “Developers are still refraining from hiking prices as overall inventories remain high, and prices rising in several first-tier cities do not represent the whole country.”

On a year-on-year basis, new-home prices fell in 69 cities in May, same as in April, the statistics bureau said.

The increases in home prices last month were mostly driven by gains in first-tier cities, according to a statement released with the data. Prices were stable in second-tier cities and continued to slide in third-tier regions, according to the statement.

More Easing

The government’s monetary easing is likely to continue as the sales recovery has yet to revive property investment and construction that are dragging on economic growth, said Liu Yuan, a research director at Centaline Group in Shanghai.

New construction starts slumped 16 percent in the first five months, the statistics bureau said last week. Property development investment grew 5.1 percent, slower than the 6 percent pace in the January-to-April period.

Existing-home prices rose last month in 37 cities from the previous month, nine more than in April, Thursday’s data showed. They fell in 28 cities and were unchanged in five.

Average new-home prices in 100 cities tracked by SouFun Holdings Ltd. reversed a yearlong decline and rose 0.45 percent in May from the previous month as developers tapped a favorable policy environment to trim inventories, according to China’s biggest property website owner.