UPDATE 2-China June home sales surge as state banks offer more credit but outlook troubling

Wed Jul 16, 2014 3:35am EDT

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* Property cooldown now seen as biggest risk to economy-analysts

* June sales surge on ample bank credit-Reuters calculations

* H1 property investment +14.1 pct y/y vs 14.7 pct growth in Jan-May

* H1 new property construction -16.4 pct y/y

* H1 property sales in terms of floor space -6 pct y/y (Adds details on home sales value)

By Xiaoyi Shao and Clare Jim

BEIJING/HONG KONG, July 16 (Reuters) - China's home sales surged in June as state-controlled banks offered more credit to buyers to avert a sharper slowdown in the sector, but analysts said weakness in the property market remained the biggest single risk facing the economy.

Sales last month climbed 32.5 percent from May to 591 billion yuan ($95.21 billion), according to Reuters calculations based on official data released on Wednesday. That compared with a 6.7 percent rise in May.

Compared to a year earlier, however, sales by value fell 5.4 percent in June, suggesting cash-strapped developers were cutting prices and offering other incentives to entice buyers and reduce inventories of unsold homes in a weakening market.

The single-month figures contrast sharply with those for January-June combined, adding to evidence that a steady stream of government stimulus measures in recent months has helped to shore up economic activity after a weak start to the year.

Property sales dropped 6 percent in the first half in terms of floor space, and 9.2 percent by value to 2.56 trillion yuan.

Thanks largely to stimulus, China's economy grew slightly faster than expected in the second quarter, expanding by 7.5 percent from a year earlier, just ahead of the pace in the first quarter.

But many market watchers still voice concerns over the outlook for the property industry.

"The biggest risk (to the economy) for the second half is a property correction and related financial risks," said Chang Jian, an analyst at Barclays Capital in Hong Kong.

Growth in real estate investment slowed in the first half of the year as sales slipped and new construction plunged, official data showed.

Real estate investment, which affects more than 40 other sectors from cement to furniture, rose 14.1 percent in the first half from the same period a year ago, down from a rise of 14.7 percent in the first five months.

New property construction slumped 16.4 percent.

The data echoes anecdotal evidence that suggests home sales slumped in the first half of this year after a strong performance in 2013.

To counter the housing slowdown, Beijing has cut taxes and loosened monetary policy to bolster activity in the sector, which accounts for over 15 percent of the country's annual gross domestic product.

Some local governments have also started to ease restrictions on property purchases which were put in place in recent years at Beijing's behest to deter speculators and curb red-hot housing prices.

Stronger-than-expected June bank lending was also seen as a signal that policymakers were growing more concerned about the drag from the property sector on the broader economy.

Mortgage lending rose 6 percent in June to 117 billion yuan from the previous month, official data on Wednesday showed, compared with monthly growth of 2.5 percent in May.

A senior central bank official was quoted as saying this week that Chinese banks increased their lending to the property sector by 18 percent in the first six months of 2014 compared with the year-ago period, in what he said is a "forceful" show of support.

Average home prices in China fell for the first time in May. The government is scheduled to release housing prices data for June on Friday.

Some analysts say large inventories of unsold homes and recent sluggish sales are likely to trigger deeper price cuts in coming months, as developers try to protect their cash flows. Developers with smaller or more fragile balance sheets may have problems servicing their debts if the downturn is prolonged.

But other experts believe China's housing market is unlikely to suffer a sharp correction due to government support, high downpayment levels and low household debt, limiting the fallout for the broader economy. ($1 = 6.2073 Chinese Yuan) (Editing by Clarence Fernandez & Kim Coghill)

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