China property market
A potential buyer looks at a model of Riva, one of the latest developments by Sun Hung Kai Properties, in Hong Kong February 19, 2014. REUTERS/Bobby Yip

BEIJING — China’s new home prices fell in July from June for a third straight month and price softness spread to more major cities, underlining a worsening property downturn despite efforts by many local governments to shore up the sector.

“The uncertainties on the outlook of the property market have kept potential home buyers standing on the sidelines,” said Liu Jianwei, a senior statistician at the National Bureau of Statistics (NBS), said in a statement accompanying the data.
China’s once-heated housing market has slowed this year as sales and prices turned south in their biggest pull-back in two years, driven in part by the cooling economy and by the national government’s five-year-long campaign to keep price rises in check.
The fall in prices adds to concerns about the health of the economy and followed news last week that property investment slowed and property sales fell sharply in July.
“We expect home prices will continue to drop in coming months due to increasingly pessimistic market sentiment,” said Yan Yuejin, a property analyst at real estate services firm E-House China in Shanghai.
“The possibility of further moves by the central bank to loosen monetary measures could not be ruled out. That will put a floor on the downside of prices,” Yan said.
Average new home prices in 70 major cities fell 0.9 percent in July from the previous month, accelerating from June’s 0.5 percent monthly drop, according to Reuters calculations based on data issued by the National Bureau of Statistics on Monday.
The softness in the housing market, which accounts for more than 15 percent of China’s annual economic output and directly impacts around 40 other business sectors, has become an increasing drag on the broader economy.
Even if the slowdown lasts for more than a year, though, a market collapse is seen as unlikely if local governments continue to relax controls and banks keep credit ample, according to a Reuters analysts poll last month.
The NBS data showed new home prices fell in 64 of the 70 cities in July from the previous month, up from 55 cities in June, indicating the downtrend was widening.
Compared to a year ago, new home prices were up 2.5 percent in July, slipping from the previous month’s 4.2 percent gains and marking the slowest annual growth in 17 months.
Existing-home prices also dropped month-on-month in 65 cities in July, compared with 52 in June.
A growing number of local governments have eased restrictions on property purchases in recent weeks, while state-controlled banks have also revved up lending to the sector, though some analysts believe banks are increasingly reluctant to lend to some developers as the downturn persists.
At least 30 regional governments, which earn a large part of their revenues from selling state land, have openly or quietly relaxed home purchase restrictions this year, according data from private consultancies.
While easier access to loans is seen as one key to preventing a sharp correction in the property market, a survey released by Standard Chartered indicated many developers were finding it tougher to access funding through banks or trust loans.
Respondents said borrowing costs were rising, and most felt banks did not appear more willing to extend loans to first-time home buyers despite encouragement from the central bank.
Several domestic banks in Shanghai, including Bank of China Ltd, China Construction Bank Corp, Industrial and Commercial Bank of China Ltd and Agricultural Bank of China Ltd, denied that they had lowered interest rates on property loans, the China Securities Journal said on Monday.
(Reporting By Xiaoyi Shao, Hou Xiangming and Koh Gui Qing)