China's December home prices stay resilient as big cities rebound

By Yawen Chen and Se Young Lee

BEIJING (Reuters) - China's home prices remained buoyant in December as big cities rebounded, a sign that Beijing's efforts to support its slowing economy may be putting a floor on the real estate market.

Investors have been closely watching China's property markets for further signs of cooling after tough curbs were put in place to rein in sky-high prices. A sharp slowdown in the key sector could prompt policymakers to turn to more forceful economic stimulus despite risks of a housing bubble.

Average new home prices in China's 70 major cities grew at a slightly slower pace of 0.8 percent in December, according to Reuters calculations from National Bureau of Statistics (NBS) data on Wednesday. November prices grew 0.9 pct on month.

That marks the 44th straight month of price increases, despite government measures designed to rein in a real estate boom that has spilled over from megacities to the hinterland.

Most of the 70 cities surveyed by the NBS still reported a monthly price increase for new homes in December. However, in a sign of weakening market strength, the number was down to 59 from 63 in November.

The sector's solid growth could cushion the impact of a vigorous multi-year government crackdown on debt and escalating trade tensions with the United States, although some analysts say bubble risks are rising as prices continue to climb.

From a year earlier, new home prices in December rose 9.7 percent, accelerating from November's pace and almost doubling from a 5.4 percent rise in December 2017.

China's real estate stocks <.CSI000948> moved higher after the data.

Chinese policymakers have rolled out a flurry of measures to support growth, including cutting in January the amount of cash that some banks must hold as reserves for the fifth time in a year, to boost lending to smaller businesses.

Wang Yifeng, director of the Financial Center of Minsheng Bank's Research Institute in Beijing, said banks had stepped up mortgage lending recently though interest rates have peaked.

"We believe that household leverage will continue to rise and a 10 percent discount on mortgage rate may reappear. This is an inevitable trend that will create a hedge for the entire market," he said, adding that some restrictive property curbs could be loosened.

Some smaller cities - with less onerous regulations - have tacitly loosened policies to boost the market. In December, Heze, a city in eastern China, reversed a rule designed to curb real estate flipping, sparking speculation more cities could follow suit as slowing sales weigh on the economy.

Price growth in China's top-tier cities - Beijing, Shanghai, Shenzhen and Guangzhou - was robust in December compared with the smaller cities, rising 1.3 percent from a month earlier, compared with an increase of 0.3 percent in November, the NBS said in a statement accompanying the data.

The top price performer in December was Guangzhou, a megacity of 13 million in southern China, whose prices surged 3 percent month-on-month, NBS data showed.

Analysts say the rebound in these tightly-regulated cities reflects easing of state-imposed price caps to accelerate sales, which had limited the number of expensive projects.

The smaller tier-2 provincial capitals and tier-3 cities that the official survey tracks posted a slightly smaller monthly price gain of 0.7 percent, respectively.

DOWNWARD PRESSURE

While many analysts are still upbeat on the sector's longer-term prospect as more people aspire to live in the cities, policymakers' warnings about bubbles and U.S.-Sino trade war risks on the broader economy have hit investor appetite.

China's top developers by sales, Country Garden <2007.HK>, China Vanke <2202.HK> and China Evergrande <3333.HK>, have seen their contracted sales slowing in recent months.

The market is expected to face more uncertainty this year, especially in the smaller third- and fourth-tier cities where population outflows are more pronounced.

"In addition to developers' own financing problems, people's expectations for their employment and income have turned more negative as the economic situation has changed, which will constrain house prices," Wang said.

New real estate loans in 2018 were 6.45 trillion yuan (£741.75 billion) - accounting for 39.9 percent of total new loans in the year, Ruan Jianhong, a central bank spokeswoman, told reporters on Tuesday, slightly lower than in 2017 when it made up 41.1 percent of total new loans.

China's official real estate investment and sales data are due to be published by the NBS next Monday.

(Additional reporting by Andrew Galbraith in SHANGHAI; Editing by Jacqueline Wong)