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China's May home prices rose at slowest pace this year

China's home prices rose at the slowest annual pace so far this year in May, official data showed on Wednesday.

Average new home prices in China's 70 major cities rose 5.6 percent from a year earlier, slowing from April's 6.7 percent rise, according to Reuters' calculations based on data released by the National Bureau of Statistics (NBS).

In month-on-month terms, prices dropped 0.2 percent to register its first fall in two years.

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In Beijing, new home prices rose 7.7 percent in May from a year earlier compared with April's 8.9 percent increase, while prices in Shanghai were up 9.6 percent versus 11.5 percent growth in April.

Markets took the news in stride; real-estate developer stocks traded mostly higher with Gemdale, Poly Real Estate and China Merchants Property up 0.4 percent each. Shanghai and Hong Kong stocks opened flat.

"My take on this is we need not worry or read too much into this because like all things in China, things happen slowly. It's a long line of adjustments and it will take shape," said David Ji, head of research & consultancy of Greater China at Knight Frank, referring to Beijing's push to rebalance its economy away from investment and towards domestic consumption.

Wang Zhao | AFP | Getty Images

"Policy is working, things need to be digested and in future, things will work out," he added.

After increasing at double-digit rates through most of last year, home prices started cooling in late 2013 as a sustained campaign to clamp down on speculative investment and easy credit took a bite.

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The softening real estate market helped drag annual economic growth to 7.4 percent in the first quarter, and a sustained fall would risk China missing its economic growth target for the first time in 15 years, analysts have warned

China's property sector is estimated to account for around 20 percent of the mainland's gross domestic product (GDP); the segment is closely watched for cues about the direction of the world's second-largest economy.

"We have seen the property market change rapidly this year. I think this quarter and coming quarter till rest of the year, market will be under pressure which means transaction volume will be struggling there or go down, and price is definitely not going to go up nation-wide," said Vincent Mo, executive chairman at SouFun Holdings, a leading real estate Internet portal in China.

He added, however, that prices and transaction volumes will remain generally resilient, and recent stimulus measures from Beijing will help.

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Chinese authorities have rolled out a series of targeted economic measures over recent weeks, also referred to as a "mini stimulus," to support growth in the world's second-largest economy.

Last week, for instance, the level of reserves banks must hold with the central bank was cut for banks that have sizeable loans to the farming sector and small-and-medium sized firms.

"Policy wise, the central government now is letting market make the decision although they are loosening the financial policies which may indirectly affect the property market positively," Mo said.

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