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China Property Price Rise Slows on Government Steps

China's annual property inflation eased to 4.2 percent in May, extending a slowdown in recent months after a series of heavy-handed tightening measures by the government to cool price rises and deflate a bubble.

Apartment buildings in Liaoning Province, China.
Jerry Driendl | The Image Bank | Getty Images
Apartment buildings in Liaoning Province, China.

But it is still too early to declare victory. The government has been relying heavily on administrative measures to curb demand and there is a still plenty of easy money sloshing around the economy, analysts say.Housing inflation in May was the slowest since the start of the year, according to Reuters calculations from latest official data published on Saturday.

It also marks the fifth consecutive decline in annual housing inflation since Reuters started to calculate China's national property price index when the National Bureau of Statistics stopped publishing it at the start of this
year.

New home prices in April climbed 4.3 percent from a year earlier compared to 5.2 percent in March, according to earlier data.

The latest price data showed China's tightening steps, including home purchase restrictions alongside higher down payments and mortgage rates, have been biting.

The mild slowdown, together with robust property investment and sales data released on Tuesday, should assuage worries about an imminent collapse of the real estate market and a hard landing in the world's second-largest economy.

Standard & Poor's ratings agency on Wednesday lowered its outlook on China's real estate market to negative from stable and predicted property prices will fall 10 percent over the next 12 months. Moody's downgraded the sector in mid-April while Fitch still holds a stable outlook.

Many analysts have warned that a bursting of a property bubble is the biggest risk threatening the world's second-largest economy in the medium to long term.

The National Bureau of Statistics said annual new home prices fell in three of the 70 cities it monitored in May, compared with three in April and two in March. In month-on-month terms, nine cities saw lowering prices, compared with nine in April and 12 in March.

New home price rose 2.1 percent in Beijing in May from a year earlier, 1.4 percent in Shanghai and 3.7 percent in Shenzhen, compared with April's annual increase of 2.8 percent, 1.3 percent and 3.1 percent respectively, the agency said in a statement publishing home price changes in 70 major cities.

In month-on-month terms, new home prices gained 0.1 percent in Beijing last month, 0.2 percent in Shanghai and 0.4 percent in Shenzhen, compared with rises of respectively 0.1 percent, 0.3 percent and 0.7 percent in April.

Annual prices picked up more quickly in secondary cities in May. China has curbed speculative home purchases in first-tier cities while implementation was lax in other cities.

New home prices rose the fastest, 9.7 percent, in May from a year earlier in the northern city of Dandong. Prices rose 7.8 percent in northern city of Mudanjiang and 7.7 percent in Changsha, Lanzhou and Qinghuangdao.

China faces rising risks from fervent property buying in outlying areas as Beijing's crackdown is unwittingly driving speculators to smaller cities from major centres, a government policy adviser said on Wednesday.

China has showed no signs of relaxing property tightening measures, although analysts expect no fresh steps either. Most analysts now expect a steady fall in home prices in the second half of this year.