2nd LD-Writethru-China Focus: China's housing market continues recovery

China's housing market continued recovering from a prolonged downturn in July, with new home prices dropping in fewer cities for a fifth month amid better market confidence and lower interest rates.

Of 70 large and medium-sized cities surveyed in July, new home prices climbed in 31, up from the 27 in the previous month, while 29 reported month-on-month price declines, down from June's 34, according to data released on Tuesday by the National Bureau of Statistics.

Year on year, 67 cities reported new home price drops, down from June's 68, with Beijing, Shenzhen and Shanghai the only three cities that posted a rise in home prices.

For existing homes, 18 cities saw price declines in July on a monthly basis, 13 reported flat prices, while 39 cities posted gains.

According to NBS statistician Liu Jianwei, home prices in first-tier cities, where demand is high, saw strong growth. While in second-tier cities, both new and existing home prices recorded weaker growth and for third-tier cities, home prices continued to decline.

China's housing 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.

To help the emerging signs of improvement in the property sector, the country also eased down payment requirements for second-home purchases and some local governments have rolled back their restrictions on home purchases.

For first-tier cities like Beijing, the home purchase rules were tightened to prevent property speculation. Beijing announced new home purchase restrictions in Tongzhou district last Friday after news about the city government's relocation to the former suburban district pushed up local housing prices.

Under the new rule, non-residents of Tongzhou and those who have not paid social insurance or taxes there for at least three years, are barred from buying second homes in the area, the Beijing municipal commission of housing and urban-rural development said in a statement.

Despite rising home prices, China's property investment continued to slow, fresh evidence of cautious attitudes from builders and the headwinds facing the industry, said Xia Dan, a senior researcher of the Bank of Communications.

Real estate investment rose 4.3 percent year on year to 5.26 trillion yuan (830.9 billion U.S. dollars) in the January to July period, with the growth rate 0.3 percentage points lower than that registered in the first half of this year, according to the NBS.

New housing construction stood at 817.3 million square meters in the period, plunging 16.8 percent from a year earlier, NBS data showed.

The country's leading residential-property developer China Vanke Co, whose earnings are seen as a barometer for China's major developers, posted slower net profit growth during the first six months of the year compared with gains in the same period last year.

Net profit edged up 0.77 percent to 4.85 billion yuan (758.3 million U.S. dollars), a sharp drop from the 5.6 percent expansion in the first half of 2014.

Though the developer sold more homes during the first six months, it is still struggling to maintain profit margins, according to its earnings report.

In addition, recovery of the housing market in small cities is weighed down by high inventories, said Zhang Dawei, chief analyst at Centaline Property.

While home sales and prices have improved in bigger cities in recent months after govenment support measures, an excess of unsold houses in small cities still keeps the housing market under pressure, said Zhang.

Bank of Communications forecast that the recovery of the housing market will continue this year as liquidity remains ample and expectations of rising prices will further prompt more people to buy. Endi