Increase in prices of Chinese homes eases; Focus on smaller cities

A block of villa residences is seen in front of new residential buildings under construction in Shenyang, Liaoning province on Thursday, July 18, 2013. The pace of China's month-on-month home price rises edged down for a third straight month in June,
A block of villa residences is seen in front of new residential buildings under construction in Shenyang, Liaoning province on Thursday, July 18, 2013. The pace of China's month-on-month home price rises edged down for a third straight month in June, though the year-on-year gains were the strongest this year, underlining the challenges facing Beijing's near four-year-old campaign to tame housing inflation. -- PHOTO: REUTERS

BEIJING (REUTERS) - The pace of China's month-on-month home price rises edged down for a third straight month in June, though the year-on-year gains were the strongest this year, underlining the challenges facing Beijing's near four-year-old campaign to tame housing inflation.

The government's campaign, which has involved raising down payments and a capital gains tax, has run up against strong demand and shortages of property and land in top cities. It has also been ignored by many local governments keen to sell land to boost revenue.

Average new home prices in 70 major Chinese cities climbed 0.8 per cent in June from the previous month, slowing slightly from May's month-on-month gain of 0.9 per cent, according to Reuters' calculations from data released by the National Bureau of Statistics (NBS) on Thursday. Compared with a year ago, new home prices rose 6.8 per cent in June, the sixth consecutive rise and the fastest pace since Reuters began calculating the data in January 2011.

With real estate one of the few bright spots in an economy slowing due to weak exports, analysts say the latest figures underscore the dilemma Beijing faces in its attempts to rein in property prices without stifling growth elsewhere.

Adding to the problem are rising risks in smaller cities, known as tier 3 and tier 4 and loosely defined as "not major centres" like Beijing or provincial capitals. Many people are moving out of these cities in search of work, as economic growth slows down.

"The housing over-supply risk is concentrating in tier 3 and tier 4 cities due to outflows of local populations and a rush of efforts by local governments to sell land," said Mr Lin Bo, head of research at China Real Estate Information, a property data provider and website operator.

"For developers who want to expand to those cities, they will face problems of slowing home sales and falling profits," Mr Lin said, adding however that there were no signs yet of any property bubbles as local home prices are not overly high.

Home prices in most of these cities are not covered in Thursday's official data, making it difficult to gauge trends. However, prices rose by between 4.5 per cent and 10 per cent year-on-year in the three cities noted as risky for developers in a recent report by Mr Lin's company that are also in the NBS national survey.