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China home price survey shows Shenzhen made huge on-year gains

Fake windows are painted on the north side wall of a Economical Housing by developer in Qingdao, Shandong province of China.
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Fake windows are painted on the north side wall of a Economical Housing by developer in Qingdao, Shandong province of China.

China's home prices rose at their fastest clip in almost two years in February thanks to red-hot demand in big cities, but risks of overheating in some places combined with weak growth in smaller cities threaten to put more stress on an already slowing economy.

Average new home prices in 70 major cities climbed 3.6 percent in February from a year ago, quickening from January's 2.5 percent rise, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) on Friday.

That was the quickest year-on-year increase since June 2014.

The NBS data showed 32 of 70 major cities tracked by the NBS saw year-on-year price gains, up from 25 in January. Tier 1 cities, including Shenzhen, Shanghai and Beijing, remained the top performers, with prices surging 56.9 percent, 20.6 percent and 12.9 percent respectively.

A slew of government measures and increased lending helped boost the housing market in the biggest cities, but signs that some places may be overheating even as prices remain depressed in smaller cities complicate matters for policymakers.

China's housing market is a crucial engine of growth, accounting for 15 percent of gross domestic product. With the broader economy decelerating amid weak exports, factory overcapacity, slowing investment and high debt levels, authorities are hoping the property market will help stabilize growth.

But a breakdown of NBS data points to persistent softness in property markets in smaller cities where a glut of unsold houses have weighed on prices. Most third-tier cities still saw on-year prices drops in February, though the declines eased from the previous month, the NBS data showed.

The uneven recovery in the housing market makes Beijing's job harder as it looks to support a faltering economy without inflating bubbles.

China's housing Minister Chen Zhenggao acknowledged on Tuesday that price divergence in China's big and small cities poses a challenge for housing market policy controls.

Official data showed last week that the growth in China's property investment in the first two months of 2016 rose 3 percent from a year ago, quickening from 1 percent gains in the full year of 2015.


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