May 18, 2016 / 2:26 AM / in 3 years

China April home prices accelerate, recovery spreads to smaller cities

HONG KONG (Reuters) - China’s home prices posted their fastest growth in two years in April, with gains in regional centers indicating a broader recovery in the country’s housing market beyond the major cities.

Old houses are seen in an area under demolition in Shanghai, China, April 18, 2016. REUTERS/Aly Song

However, while Shanghai and Shenzhen remained the country’s two hottest housing markets, there are signs recent tightening measures are beginning to temper demand in those cities.

Average new home prices in 70 cities climbed 6.2 percent in April from a year ago, up from March’s 4.9 percent rise, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) on Wednesday.

That was the quickest year-on-year increase since April 2014, while 46 of 70 major cities tracked by the NBS saw annual price gains, increasing from 40 in March.

“(Price) growth in first and second-tier cities continued to accelerate, while third-tier cities reversed declines to post growth,” Liu Jianwei, a senior statistician at the NBS, said in a statement accompanying the data.

The recovery in China’s property market since late last year has been a rare bright spot in the world’s second largest economy, which has been slowing amid internal restructuring and weak global demand.

However, rising debt levels in the country have also been a source of angst for policymakers who have publicly warned against excessive lending.

Shenzhen and Shanghai were still the two top performers, with home prices rising 62.4 percent and 28 percent from a year ago, respectively.

Compared with March, however, price gains slowed, suggesting recent tightening policies might be gaining traction, with Shenzhen growth easing to 2.3 percent from 3.7 percent, while Shanghai growth slowed to 3.1 percent from 3.6 percent.

Both cities tightened downpayment requirements for second homes and raised the eligibility bar for non-residents in late March.

“A change was observed in the growth trend among cities... secondary homes in Shenzhen even posted a month-on-month drop, while growth in some of the second-tier cities accelerated and exceeded first tiers,” Liu said.

Realtors said home sales in Shenzhen and Shanghai have plunged as much as 60 percent after the new policies.

China’s housing market bottomed out in the second half of the year on a series of government support measures, although most smaller cities haven’t been able to clear their oversupply issues, prompting many local authorities to push for even more stimulus.

Property professionals in some lower-tier cities said prices have been recovering, helped by the slew of support measures.

“Prices have been on the rise since the start of this year after the loosening of mortgage rate and purchase restriction,” said Chen Ruisheng, a property development manager in the eastern coastal city of Wenzhou.

“Many developments are completing sales...government stimulus and subsidies must have some positive impact.”

The area of property sold in the January to April period grew at the fastest pace in three years, rising 36.5 percent, according to official data on Saturday.

Property investment in April grew 9.7 percent, maintaining March’s pace, as developers continued project starts in response to surging home sales, which are giving a much-needed boost to the slowing economy.

eporting by Clare Jim in Hong Kong and Brenda Goh in Wenzhou; Editing by Sam Holmes

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