China April home prices fuel hopes of bottoming out, but long road to recovery

Mon May 18, 2015 1:36am EDT
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By Clare Jim

HONG KONG (Reuters) - China's new home prices fell for the eighth consecutive month in April from a year earlier but were flat from March, adding to hopes that a property downturn which is weighing heavily on the economy is beginning to bottom out.

But analysts warned any recovery in the market will take some time given a huge inventory of unsold homes, and said the property sector remains the biggest risk to the world's second-largest economy, which looks set for its worst year in 25 years.

That will keep pressure on policymakers to roll out more interest rate cuts and other stimulus measures later this year to boost activity.

Average new home prices in China's 70 major cities dropped 6.1 percent last month from a year ago, the same rate of decline as in March, according to Reuters calculations based on official data published on Monday. But nationwide prices steadied from March, further narrowing from a 0.1 percent fall in the previous month.

Beijing saw prices rise, albeit modestly, for the second month in a row, while those in Shanghai rose for the first time in 12 months. But prices in many smaller cities, which account for around 60 percent of national sales, continued to fall.

"We expect home sales to see year-on-year growth in the second half of the year, and home prices in third- and fourth-tier cities to also bottom out in the second half," said Nomura chief China economist Zhao Yang.

"But the big impact for the overall economy is from property investment, where I don't expect a quick rebound in growth...that's why we forecast China will miss its 7 percent target (for 2015)."

Zhao said real estate investment, which comprises around 20 percent of China's GDP, may grow less than 5 percent this year, compared with 10.5 percent in 2014, knocking 1 percentage point off economic growth.   Continued...

Apartment blocks (R) are seen at sunset in Beijing, April 7, 2015. REUTERS/Jason Lee