2nd LD-Writethru-China Focus: Housing market continues to warm despite economic slowdown

China's property sector, a major pillar for economic growth, continued to pick up thanks to favorable policies and a stock market rout, although GDP expansion dipped to a six-year low.

Of 70 large and medium-sized cities surveyed in September, new home prices climbed month on month in 39 cities, up from 35 in August, the National Bureau of Statistics (NBS) said Friday.

Meanwhile, 21 cities reported month-on-month price declines, down from 26 in August, according to the NBS.

Year on year, 12 cities reported new home price increases, up from nine in August, with Shenzhen posting a surge of 38.3 percent in home prices, the sharpest increase among major Chinese cities.

However, prices for existing homes remained weak, with 18 cities reporting month-on-month declines, up from 16 in August. Thirty-nine cities saw price increases in September, compared with 43 the previous month.

"Trends in China's real estate market continued to diverge in September," said NBS statistician Liu Jianwei.

Home prices in top-tier cities, where demand is high, saw strong growth. In second-tier cities, prices staged mixed performances, while they continued to drop in third-tier cities.

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.

To combat the slowdown, the central bank has cut benchmark interest rates four times since November and lowered banks' reserve requirement ratio twice since February.

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

China's banking and housing regulators slashed down payment requirements for second home purchases using provident funds to 20 percent from 30 percent in late August, provided the buyers have paid off mortgages on their first home.

A stock market rout since mid-June has also prompted investors to withdraw their money from volatile shares to buy homes as a much safer investment.

Despite the warm-up in home prices, earlier NBS data showed that the country's property investment remained anemic in the first three quarters of 2015.

Housing investment rose 2.6 percent year on year from January to September, down 0.9 percentage point from the first eight months and down 2 percentage points from the first half of the year. New home construction dropped 12.6 percent year on year in the period.

Slower investment and construction underscored a major home glut in lower-tier Chinese cities, and analysts predict it will take several years before existing homes find buyers.

"Home oversupply is still a serious problem in small cities. I believe property developers will not hike prices in the near future to promote sales," said Ni Pengfei, an urban development researcher with the Chinese Academy of Social Sciences.

His remarks were echoed by Zhang Dawei, chief analyst with brokerage Centaline Property, who said prices in third and fourth-tier cities will remain stable and those in top-tier cities will increase.

A national survey conducted by China's central bank earlier this month showed that 46.5 percent of those polled said current home prices are "acceptable," while 49.7 percent believe they are "too high."

The recovery in China's housing market came as the world's second largest economy struggles to stabilize growth, with GDP growth dipping to 6.9 percent in the third quarter of 2015, the slowest pace since the second quarter of 2009.

China's policy makers will probably attach greater significance to the property sector to fight the downward pressure, according to Zhang.

Many economists said the likelihood of further monetary easing measures is high.

Zhang Jun, a senior researcher with Morgan Stanley Huaxin Securities, predicted an interest rate cut and a reduction in the reserve requirement ratio in the remaining months of the year. Endi