* June home prices +0.8 pct on month vs +0.9 pct in May
* Prices rise 6.8 pct yr/yr in June vs +6.0 pct in May
* New home prices rise in 63 of 70 cities vs 65 in May m/m
* Tier-3 cities face increasing over-supply pressure
By Xiaoyi Shao and Jonathan Standing
BEIJING, July 18 (Reuters) - The pace of China's month-on-month home price rises edged down for a third straight month in June though the year-on-year gains were the strongest this year, underlining the challenges facing Beijing's near four-year-old campaign to tame housing inflation.
The government's campaign, which has involved raising downpayments and a capital gains tax, has run up against strong demand and shortages of property and land in top cities.
It has also been ignored by many local governments keen to sell land to boost revenue.
Average new home prices in 70 major Chinese cities climbed 0.8 percent in June from the previous month, slowing slightly from May's month-on-month gain of 0.9 percent, according to Reuters' calculations from data released by the National Bureau of Statistics (NBS) on Thursday.
Compared with a year ago, new home prices rose 6.8 percent in June, the sixth consecutive rise and the fastest pace since Reuters began calculating the data in January 2011.
With real estate one of the few bright spots in an economy slowing due to weak exports, analysts say the latest figures underscore the dilemma Beijing faces in its attempts to rein in property prices without stifling growth elsewhere.
Adding to the problem are rising risks in smaller cities, known as tier 3 and tier 4 and loosely defined as not major centres like Beijing or provincial capitals.
Many people are moving out of these cities in search of work, as economic growth slows down.
"The housing over-supply risk is concentrating in tier-3 and tier-4 cities due to outflows of local populations and a rush of efforts by local governments to sell land," said Lin Bo, head of research at China Real Estate Information Corp, a property data provider and website operator.
"For developers who want to expand to those cities, they will face problems of slowing home sales and falling profits," Lin said, adding however that there were no signs yet of any property bubbles as local home prices are not overly high.
Home prices in most of these cities are not covered in Thursday's official data, making it difficult to gauge trends.
But, prices rose by between 4.5 percent and 10 percent year on year in the three cities noted as risky for developers in a recent report by Lin's company that are also in the NBS national survey.
Looking at the month-on-month trends, one saw a decline of 0.1 percent and two saw rises of 0.3 percent and 1.8 percent.
And there are signs that property developers, who moved into tier-3 cities to skirt government curbs on property speculation in bigger cities, are already withdrawing due to weak demand.
"Once we wanted to enter the city of Zhuzhou, but we changed our mind because of over-supply risk," said Yi Xiaodi, president of a mid-sized developer Sunshine 100, which focuses on tier-2 and tier-3 cities and saw its sales jump about 40 percent in the first half of this year compared to a year ago.
He still sees tier-2 cities as attractive, but said he will avoid any tier-3 cities deemed to be too risky.
Measures implemented so far to restrain home price rises have been ineffective, even where they have been implemented, such as in the capital Beijing.
"The central government must ensure that the latest property controls are fully carried out in second-tier cities and beyond to achieve the national impact needed to stabilize the market," said Mark Budden, a senior consultant at EC Harris in Hong Kong, in an emailed comment.
"Faced with the dilemma of how to lower housing prices without exacerbating the economic slowdown, the Chinese government may assess second-quarter results before introducing tougher measures."
New home prices in Beijing rose 12.9 percent in June from a year earlier, the fastest pace this year, compared with May's year-on-year increase of 11.8 percent. Home prices in June were up 1.3 percent on May, unchanged from the monthly change between May and April.
Shanghai's prices were up 11.9 percent in June from a year ago, also the fastest this year, versus 10.2 percent annual growth in May, the NBS data showed. Prices in Shanghai in June were 1.8 percent higher than May, compared with May's 1.4 percent rise over April.
Home prices rose month-on-month in 63 of 70 cities monitored by the NBS in June, down from 65 in May.
Recent buoyancy in land markets in tier-1 cities - typically a prelude to home price increases - will reinforce market expectations that prices will continue to rise.
The average price of land for residential homes rose 6 percent to 4,799 yuan ($780) per square metre in 105 major cities in April to June from a year earlier, according to a report released by China Land Surveying and Planning Institute, a research unit under the ministry.
It was the third consecutive quarter of land price inflation.
Reuters started its weighted China home price index in January 2011 when the NBS stopped providing nationwide data, only giving home price changes in each of 70 major cities.