BEIJING Pent-up demand is pulling China's housing market out of the doldrums, but industry experts doubt that a strong, sustained recovery is about to take hold.
Urban property prices rose in March for the first time in seven months, adding to evidence of recovery witnessed in rebounding sales since the start of the year.
Residential transactions, excluding social housing, rose 24.7 percent by value in the first quarter compared with a year earlier, according to the National Bureau of Statistics.
All in all, analysts reckon the steep decline in property prices is over after a slump of more than 20 percent in some cities in the past year.
But that's not the same as saying a rebound in prices is in the offing.
"A big difference in this recovery is that it is coming from the end-user market," said Anton Eilers, executive director for China's residential market at CBRE (CBG.N), a global property services provider.
"We are not seeing significant numbers of investors coming back into the market, looking at capital appreciation," he said.
That is in stark contrast to 2005 to 2007, when speculative buying was at its peak, and means that if prices rise by more than owner-occupiers expect, sales volumes will immediately drop.
The case of Beijing illustrates the point. The number of units sold in the capital fell 5 percent in the week ending April 26 from the week before after many developers raised prices, domestic media reported.
SIGNS OF RECOVERY
When China's housing market was booming, it was common for buyers to queue the night before a developer started pre-selling a project still under construction.
Such scenes, not seen for more than a year since the market went into a swoon, are now being replayed.
"We came here yesterday afternoon. It's still a bit cold on a spring night," said Qu Qiuping, a woman in her forties who lined up overnight with her husband last Saturday to buy a 60 square meter (650 sq ft), one-bedroom flat in a new building in eastern Beijing.
More than 80 percent of the apartments in the building had been sold by the end of the first day, according to Wang Dan, a sales agent for the project.
While the mid-end mass market is warming up, CBRE's Eilers said a recovery in the luxury residential sector will depend on a firm turnaround in the overall economy.
With real estate accounting for nearly a quarter of Chinese fixed investment, the authorities are doing their bit to help.
Even though a 4 trillion yuan ($585 billion) stimulus package is kicking in strongly, the cabinet on Wednesday gave an extra boost to several industries, including property, by reducing the proportion of equity capital that investors must put into new projects.
"Overall, we take a view that this change will help to boost fixed asset investment by reducing the entry requirement for investors, and by allowing bank credit to play a bigger role in project financing," Wensheng Peng, an economist at Barclays Capital in Hong Kong, said in a note to clients.
Developers now must meet a minimum capital requirement of 35 percent for property investment projects.
Beijing has also cut mortgage rates and transaction taxes to encourage owner-occupiers to take the plunge into the market.
Some cities, including Beijing and Shenzhen, have gone further and taken steps to stimulate demand from foreigners and for luxury homes.
The various measures have driven cash buyers, particularly newly wed couples, back into the market.
But Lu Zhengwei, chief economist with Industrial Bank in Shanghai, said: "To absorb 80 percent of developers' inventories, China still needs to boost demand for larger units and luxury homes."
That means developers need to lower their prices further, otherwise buyers will sit back and wait, he said.
For their part, however, developers show little inclination to sacrifice price for volume because their financing prospects are much brighter than they were six months ago.
The corporate debt market is taking off, and Beijing has said it will soon launch a pilot scheme for Real Estate Investment Trusts, or REITs, and, crucially, loans are easier to get.
For example, SOHO China (0410.HK) agreed a 10 billion yuan credit line with Bank of China (3988.HK) in March for five years so that the developer can expand through acquisitions.
The upshot is that the market could be in for a period of stability.
"Prices will move up and down in a limited range. It's very unlikely that we'll see another fall as steep as the one we've just experienced," said Wang Chen, head of research at DTZ in Beijing.
(Editing by Jan Dahinten)