News Analysis: Home prices rise amid recovering market confidence

China's housing market seems to be picking up as government support policies take effect.

The average price per square meter in a sample of 100 cities rose 0.56 percent month on month to 10,628 yuan (1,739 U.S. dollars) in June, according to a survey by the China Index Academy (CIA), an independent research institute.

The gain accelerated from 0.45 percent in May, which was the first rise since January. Leaving aside the uptick in January, this price index had been in decline for 12 months.

Prices for second-hand houses rose by 8.59 percent in June from May, and by a dramatic year-on-year surge of 19.12 percent, the survey showed.

"The real estate market is clearly warming up," said Li Qiaoling, an analyst from Homelink, China's largest chain real estate broker. Li attributed the trend largely to official easing policies restoring market confidence.

The market took a downturn in 2014 due to weak demand and a surplus of unsold homes. The cooling has continued into 2015, with both sales and prices falling and investment slowing.

The central bank has moved to combat the slowdown, cutting benchmark interest rates four times since November and lowering banks' reserve requirement ratio twice since February.

The latest interest cut of 0.25 percentage points over the weekend brought the benchmark rate for loans of five years or longer, which is the maturity of most mortgages, to 5.4 percent, the lowest since 1991.

The country also eased down payment requirements for second-home purchases at the end of March, and some local governments have rolled back their restrictions on home purchases.

Li predicted that home sales will continue picking up in the third quarter as the government will roll out more easing policies.

Rating agency Moody's changed its outlook for the China property industry to stable from negative on June 1, forecasting modest year-on-year growth of up to 5 percent in the value of nationwide property sales over the next 12 months.

The CIA survey showed that the greatest price rises over the past six months were in Shenzhen, where new residential property prices surged by 6.58 percent in June from a month earlier.

According to NBS statistician Liu Jianwei, average new home prices in top-tier cities gained 1.7 percent on a monthly basis in May, while those in smaller third-tier cities declined.

New home prices in Beijing, Shanghai, Guangzhou and Shenzhen increased 3 percent month on month in May.

Though home transactions are rebounding, pressure will remain on the housing sector, particularly in second- and third-tier cities, given the size of the inventory, said Zhang Dawei, chief analyst at Centaline Property.

There were 260.92 million square meters of housing vacant in the 35 Chinese cities monitored by property consultancy E-House China at the end of May.

"The priority of China's housing market in the second half of this year is to continue reducing inventories," said Zhang. Endi