China new home prices fall at slower pace, but recovery doubtful

By Liangping Gao, Yukun Zhang and Ryan Woo BEIJING, July 15 (Reuters) - China's new home prices contracted at a slower pace in June, but the modest improvement is unlikely to result in a broad

By Liangping Gao, Yukun Zhang and Ryan Woo BEIJING, July 15 (Reuters) - China's new home prices contracted at a slower pace in June, but the modest improvement is unlikely to result in a broad recovery as economists expect weak housing demand to persist in the second half and as Beijing refrains from major stimulus. New home prices dropped 0.1% in June from the previous month versus a 0.2% decline in May, according to Reuters calculations based on data released by the National Bureau of Statistics. On an annual basis, prices fell 3.3%, easing from a 3.5% decrease in May.

China's housing market slump, now in its fifth year, has been constraining household consumption and exacerbating the economy's imbalance between strong industrial supply and weak domestic demand. Economic growth slowed sharply to 4.3% in the second quarter from a year earlier, official data showed on Wednesday, missing analysts' expectations. "China enters the second half of the year facing a more difficult backdrop.

Domestic demand remains subdued, while external headwinds are intensifying. Resilient exports have provided an important pillar of growth, but they cannot carry the economy alone," said Sarah Tan, economist at Moody's Analytics. Some economists said the housing market might be close to finding a bottom, but others cautioned that the downturn would continue without stronger policy support due to subdued consumer confidence.

Home price data this year showed modest improvement in both new and resale markets in China's top-tier cities, but developers in smaller cities continued to struggle with weak sales despite a renewed government push to reduce housing inventory. The property market is expected to see only fleeting pockets of strength in the second half, rather than a broad-based rebound, with the divergence between prime and weaker markets set to persist, said Zhang Dawei, chief analyst at Centaline Property Agency. New and existing home prices in tier-one cities in June rose 0.1% and 0.3% month-on-month, respectively, while prices in both markets in tier-two and tier-three cities showed no month-on-month growth.

On an annual basis, prices of both new and existing homes continued to fall across all city tiers in June, though declines narrowed in tier-one cities. MAJOR STIMULUS NOT LIKELY Morningstar analyst Jeff Zhang said July's Politburo meeting was not expected to deliver major stimulus, with support likely to remain focused on city-specific measures and favourable adjustments to the housing provident fund.