China's property market rebounds

Chinese Premier: China 'not yet stable'
Chinese Premier: China 'not yet stable'

    JUST WATCHED

    Chinese Premier: China 'not yet stable'

MUST WATCH

Chinese Premier: China 'not yet stable' 02:11

Story highlights

  • Government has spent past two years trying to cool real estate sector
  • Of 70 cities tracked, 25 register month-on-month price rises; 24 remain same
  • In May, prices fell in 43 cities
  • Chinese central bank cut interest rates at start of June, again at start of July

China's property market rebounded in June, with housing prices rising in many of the country's major cities for the first time in a year following government moves to stimulate the economy.

A sluggish real estate sector has been the biggest drag on Chinese growth, so an increase in prices is a strong signal that the second half of the year will bring a recovery for the world's second-largest economy from its first-half slowdown.

However, analysts said the fact that housing prices were increasing so soon after the start of policy easing will also be worrying for the government, which has spent the past two years trying to cool the frothy real estate sector.

"This makes it more difficult to loosen property sector policy," Zhang Zhiwei, an economist with Nomura, wrote in a note. "It also reinforces our view that the government will rely more on public investment to boost growth and is unlikely to cut interest rates further in the rest of 2012, in order to avoid a resurgence of the property price bubble."

Of the 70 leading cities tracked by the Chinese statistics bureau, 25 registered month-on-month price increases, and 24 saw prices remain the same, while prices fell in 21. That was an abrupt reversal from May when prices fell in 43, stayed level in 21 and rose in only 6.

Strikingly, most of the country's biggest cities, which are the trend setters for the national property market, recorded gains in June. Beijing housing prices were up 0.3 per cent, Shanghai up 0.2 per cent and Guangzhou up 0.2 per cent. For the latter two, that was their first price increase in one year.

The Chinese central bank cut interest rates at the start of June and again at the start of July, heralding a shift to more relaxed monetary policy. The government has also encouraged banks to give discounts on mortgages to first-time home buyers.

But officials remain extremely wary about the property market, where prices have soared beyond the reach of ordinary people and fueled complaints about the country's widening wealth gap. In March, Wen Jiabao, premier, said housing prices "are still far, far from returning to a reasonable level".

The government tried to calm the property market as early as 2007, but prices took off again when it launched a large economic stimulus program in late 2008 after the global financial crisis erupted. Officials have vowed that there will be no repeat stimulus this time.