China Focus: Divergent housing market performance in large, smaller cities

With supportive policies targeted at the property sector taking effect, the housing market in China's metropolitans has witnessed a revival while recovery in smaller cities remains mild due to the size of inventories and other headwinds.

Home sales volume in China's tier-one cities like Beijing and Shanghai surged 42.9 percent in the first half of this year on a yearly basis, with the uptick in tier-two cities at 16.9 percent. Tier-three cities fell by 2.9 percent, the latest data from property agent Centaline revealed.

The trend was buttressed by other private and official industry reports. Figures from leading property agent Home Link showed that existing home sales units in Beijing spiked 92 percent in the first half from a year ago with average sales price climbing 3.8 percent to 34,606 yuan (5,658 U.S. dollars) per square meter.

Big city property markets are showing the opposite trend of tier-three and tier-four cities in recent months, as recovery of the housing market in small cities is weighed down by high inventories, said Zhang Dawei, chief analyst at Centaline.

The warming market in large cities is bolstered by supportive monetary and tax policies, with many families encouraged to change to bigger apartments, said Hu Jinghui, vice president of another major realty firm 5i5j.com.

The fortunes of the property market are deemed to be crucial to the world's second largest economy. It took a downturn in 2014 due to weak demand and the cooling continued into the first months of 2015, fuelling concerns that persistent weakness in the faltering sector and exports may derail the already slowing economy.

In March, China reduced down payment levels for second home buyers to 40 percent from the previous 60 to 70 percent, and exempted business tax for sales of homes purchased over two years ago.

Data from 5i5j.com showed that sales volumes in China's eight major cities including Beijing, Shanghai, Guangzhou and Shenzhen have all bottomed out in the first half compared to the trough in 2014.

However, no quick rebounds for the housing market in small cities and towns was seen, as many young people are rushing to big cities seeking better employment, education and medical services, analysts believed.

Big pressure remains in tier-three and four cities, as recovery is weighed down by the oversupply of housing built in the past few years, said Zhang.

On the back of monetary easing and preferential tax policies, China's real estate recovery on the whole will continue into the second half of this year, and the transaction volumes in tier-one and tier-two cities are forecast to surpass those in the first half, said Hu.

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