(MENAFN- Gulf Times) Home prices in China rose for a fourth consecutive month in August, offering hope that the ailing property sector is becoming less of a drag on the slowing economy.
But analysts do not expect a full-blown turnaround any time soon, as a huge overhang of unsold homes discourages new construction and investment in all but the biggest cities.
Average new home prices inched up 0.3% in August from the previous month, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) yesterday, the same pace as in July.
Price gains were recorded in 35 of the 70 cities the NBS surveyed, up from 31 in the previous month.
The NBS said that, on a nationwide basis, prices rose 1.7% year-on-year in August, marking the first increase since September 2014. A Reuters calculation, based on the bureau's data, showed prices were still down 2.3% from a year ago.
The property sector accounts for 15% of China's gross domestic product, so even modest signs of improvement would relieve some pressure on the economy, which is expected to expand at its slowest pace in a quarter of a century this year.
But economists at Standard Chartered say sentiment in the property market is still fragile, and believe it remains one of the biggest headwinds for the economy, especially as growth in other areas slows.
A StanChart survey of 30 non-listed developers in medium-sized cities such as Hangzhou in July found that inventories are being worked off only slowly, construction activity remains weak and access to financing is becoming more difficult despite lower funding costs.
"Our surveyed developers expected further policy loosening in the second-half of 2015," StanChart said.
Indeed, China relaxed its housing investment rules for the second time in two weeks on September 1 by slashing the downpayment level for some second-home buyers. Days earlier, it loosened rules for foreigners to buy real estate. While home sales and prices have picked up, growth in China's property investment in the first eight months of the year slowed to 3.5% from a year earlier, the lowest since early 2009, while new construction starts plunged by nearly 17%, depressing demand for materials from cement to steel.
Moreover, price trends are uneven across the country, with those in smaller cities such as the northeastern city of Dandong continuing to fall, albeit at a milder pace. Since economists believe much of the inventory overhang is in second- and third-tier cities, that weakness is expected to persist.
The biggest "first-tier" cities fared better, with Shenzhen being the top performer with a rise of 5.1% on the month and 31.3% from a year earlier.
"Getting bank loans is still easy," said a Shenzhen retiree who gave her surname as Zou, adding she had bought two new apartments recently.
"Many people bought new flats because they thought the stock market has peaked, so they took profits from the stock market to buy property," she said. China's stock markets have plunged some 40% since mid-June. Home prices in Beijing rose 1.1% from July and 3% from a year earlier, while those in Shanghai rose 1.3% and 5.6%, respectively.
A string of downbeat activity data combined with wild price swings in the stock markets and a surprise currency devaluation in August have fuelled fears that the Chinese economy may be slowing more sharply than was expected earlier, putting Beijing's 2015 growth target of 7% at risk.
Some economists believe current growth levels are already much weaker than official data suggest. The US Federal Reserve held off from raising interest rates on Thursday, citing in part global uncertainties, in particular slowing growth in China and other emerging markets.
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