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

Recovery in China's real estate sector slowed in October as fewer cities reported price increases, mainly due to continuing oversupply of homes.

Of 70 large and medium-sized cities surveyed in October, new home prices climbed month on month in 27, down from 39 in the previous month, the National Bureau of Statistics (NBS) said Wednesday.

Meanwhile, 33 reported month-on-month price declines, up from 21 in September, according to NBS data.

On a yearly basis, China's housing market continued to warm in October, with 16 cities posting new home price increases, up from September's 12.

New home prices surged 40.5 percent year on year in Shenzhen City, the sharpest increase last month among the country's major cities.

Prices for existing homes remained weak in October, with 23 cities reporting month-on-month declines, up from 18 in September. A total of 38 cities saw price increases, compared with 39 in the previous month.

"Trends in Chinese real estate have diverged notably," 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 supply glut. The cooling has continued into 2015, with both sales and prices falling and investment slowing.

To combat the housing market weakness and a broader economic slowdown, China's central bank has cut benchmark interest rates five times since last November and lowered banks' reserve requirement ratio three times 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.

Thanks to support measures, the housing sector recovered to some extent in summer and autumn with improving home prices.

In the Jan.-Oct. period, total investment in the property sector in China rose 2 percent year on year, according to NBS data.

However, investment dropped 2.4 percent in October, indicating less housing construction.

The country's unsold home inventory hit a record of 686.3 million square meters at the end of October, up 17.8 percent from the previous year.

"Oversupply is the most serious problem in the property market. Home prices will remain soft if the glut continues," said Yang Hongxu, deputy head of property market researcher E-house China R&D Institute.

According to Yang, a sluggish housing market will delay the bottoming out of the Chinese economy and even threaten the stability of the financial system as properties are widely used as collateral for bank loans.

China's top leaders have attached greater significance to the real estate sector, an important pillar industry of the world's second-largest economy, with a focus on reducing the huge inventory.

President Xi Jinping urged more effort to address oversupply, when he presided over a meeting of the Central Leading Group for Financial and Economic Affairs last week.

Earlier this month, Premier Li Keqiang told a cabinet meeting that the government should overhaul China's household registration system in a bid to encourage more rural residents to settle in cities to boost consumption of homes and electronic appliances.

"Previous stimulus played a part in accelerating the process of de-stocking, but cannot reverse the oversupply trend, especially in smaller cities, in the short term," said Chen Jie, a researcher with Shanghai University of Finance and Economics.

"Both Xi and Li stressed the importance of housing inventory reduction. I expect the government to roll out more measures to encourage home purchases," said Yang. Endi