July 18, 2012 / 5:03 AM / 7 years ago

UPDATE 2-Signs of China's economy turning in June home prices

* China June home prices flat on mth, -1.5 pct on yr-Reuters calc

* New home prices fall in 21 cities in June versus 40 in May

* Market expects home price to rise in H2 -Reuters poll (Recasts, adds quotes, context)

By Langi Chiang and Nick Edwards

BEIJING, July 18 (Reuters) - China home prices broke eight straight months of decline in June in a tentative sign that pro-growth policies are gaining traction in the world’s second biggest economy, now in its longest sequential slowdown since the global financial crisis.

Real estate, which directly impacts around 40 other business sectors in China, was cited last week as a brake on economic activity when Q2 GDP data showed growth eased to 7.6 percent from a year ago - the slowest in more than three years.

The signs of a turn in property coincide with other June data published recently which show the sequential rate of decline in the economy slowing after nine months of policy fine-tuning by Beijing that has included two cuts to benchmark interest rates in June and early July.

“Upward movement is surely the direction of China’s home prices after two rate cuts,” said a salesman surnamed Shao who is marketing a housing development by Poly Real Estate in Beijing.

Prices were flat nationwide in June versus May, according to Reuters calculations of data from the National Bureau of Statistics that showed small increases of 0.3 percent and 0.2 percent, respectively, for Beijing and Shanghai.

Salesman Shao said a new phase of the Poly Real Estate development, set for imminent sales launch, would likely see a five percent price hike.

Such a sudden turn, if repeated nationally, would put Beijing in a quandary, needing to underpin economic growth while running the risk of rekindling property speculation.

The government put strict curbs on the property market more than two years ago to snuff out a speculative frenzy unleashed by China’s 4 trillion yuan ($635 billion) economic stimulus package launched in the wake of the 2008-09 global crisis.

But the cooling off in real estate, a driving force in China’s demand for global commodidites, has coincided with a further deterioration in global economic prospects. And world trade growth, to which China’s economy and factory sector are levered, has slowed sharply.

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POLL-China home prices to rebound in H2

China policy chiefs bid to boost growth

China’s economy cools, shows need for action

Beijing land parcel sells at record price

Property investment drags China H1 FDI down

China property sales rebound in June

China home price graphics link.reuters.com/pek96s

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Beijing’s switch to a pro-growth policy stance since launching its “fine-tuning” programme in the autumn of last year has seen it ease fiscal and monetary policies, fast-tracking infrastructure spending and freeing an estimated 1.2 trillion yuan for new lending through cuts to bank reserve requirements.

The government has stopped short of an outright easing of rules to curb property speculation, but policy tweaks by more than 30 local governments in the past few months have made it easier for people to buy homes, boosting property sales and changing market sentiment.

Chinese property sector shares have have performed well in the first half of the year, as investors anticipated some turnaround in the housing market.

The Shanghai property sub-index has risen 20 percent since the start of the year, having slumped 18 percent in 2011 and 28 percent in 2010.

Home prices, however, remain well beyond the reach of most middle-class families and China’s Premier Wen Jiabao has repeatedly pledged to pull the cost down to a “reasonable level,” though without defining what that level is.

City authorities in Beijing sold a land parcel at a record high of more than 40,000 yuan ($6,300) a square metre in an auction last week, with the winning bid capped to keep it from going too high for what analysts consider to be Beijing’s last available plot for residential development.

SWIFT REBOUND UNWELCOME

The Communist Party is hyper-sensitive to any discontent, especially ahead of its once-a-decade leadership transition due in the autumn of this year, a showpiece event which the government is determined takes place against a backdrop of social stability and economic prosperity.

Ma Xiaoming, a senior statistician at the National Bureau of Statistics, said accommodative economic policies had shifted market sentiment, making the policy mix even more delicate.

“Pent-up demand has been released recently, especially because market expectations on home prices have changed and people are now worried about a rebound in home prices,” Ma said in a statement accompanying the June house price data.

“We must firmly press ahead with the property controls and regard it as a long-term policy to curb speculative property demand,” he said. “We must not let home prices rebound, otherwise, our efforts will come to naught.”

That view was echoed by analysts.

“The biggest risk to policy easing in the second half is the housing market,” Jianguang Shen, chief China economist at Mizuho Securities Asia, said.

Evidence of a sharp rebound in home prices, however, remains thin.

Nationwide they fell 1.5 percent in June on a year earlier, according to Reuters calculations based on the official data, in line with results of a Reuters poll taken last week.

Month-on-month, new home prices fell in 21 cities in June, down from 40 in May and 2011’s peak of 52 in December, confirming a trend since the start of this year.

Property sales swung into positive growth in June for the first time in eight months and a 6.9 percent annual growth in China’s property sales revenues in June - snapping a seven-month losing streak - both bode well for recovery prospects.

“With rate cuts and a return of market confidence, we think transactions will continue to recover. However, oversupply will remain in the next 12 months or so, which will cap price rises,” Lan Shen, a Shanghai-based Standard Chartered economist, said.

Reporting by Langi Chiang, Xiaoyi Shao and Nick Edwards; Editing by Simon Cameron-Moore

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