China nationwide home prices rise in May for first time in 13 months, outlook cloudy

Thu Jun 18, 2015 4:49am EDT
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By Clare Jim

HONG KONG (Reuters) - New home prices in China rebounded nationwide for the first time in 13 months in May, suggesting a property downturn is bottoming out after a barrage of stimulus from the central bank and local governments since late last year.

Economists, however, warned that massive inventories of unsold homes could continue to drag on the world's second-largest economy well into next year, discouraging new investment and construction.

"Inventories in first-tier cities are back to healthy levels...but in third and fourth-tier cities it will take at least two more years," said Rosealea Yao, economist at Gavekal Dragonomics based in Beijing.

Average new home prices in China's 70 major cities climbed 0.2 percent in May from April, the first rise since May 2014, according to Reuters calculations based on official data released on Thursday.

Weighed down by the cooling property market and sluggish demand at home and abroad, China's economic growth slowed to a six-year low of 7 percent in the first quarter and recent data showed weakness persisted into the second quarter, putting more pressure on the government to step up policy stimulus.

While signs of a stabilization in prices will ease strains on the economy and help banks which are heavily exposed to the real estate market, analysts said a full-blown sectoral recovery was still a long way off.

Official data last week showed residential inventory in May was 21.9 percent higher than a year ago.

Bloated inventories may result in a longer lag between sales and new housing starts than the six- to eight month-long gap previously seen. Hence, bottoming-out of new home prices is unlikely to lead to a recovery in property investment this year, economists said.   Continued...

A man riding a bicycle drives past an apartment building in Beijing, March 18, 2015. REUTERS/Kim Kyung-Hoon