Feverish prices highlight uneven recovery in China's housing sector

BEIJING - Feverish home prices in top-tier Chinese cities are new signs of improvement in the housing market, but may not indicate a full recovery in the sector.

While home prices in metropolises such as Beijing, Shenzhen and Shanghai shot up, markets in small cities remained subdued due to excess stock, which the government has aimed to reduce, but with little success so far.

The housing price index for China's first-tier cities surged 24 percent year on year in January, the latest data from property service provider Savills showed.

However, second- and third-tier cities saw their price indices almost unchanged, while fourth- and fifth-tier cities continued to post drops.

Official data drew a similar picture. In January, new home prices in the southern Chinese economic hub of Shenzhen soared 52.7 percent year on year, according to the National Bureau of Statistics (NBS). Prices in Shanghai jumped 21.4 percent and those in Beijing rose 11.3 percent.

But of the 70 monitored cities, 45 still had new home prices below the levels reported a year earlier.

Analysts attributed the top-tier market revival to government easing efforts, higher expectations for price rises, as well as speculative and investment demand.

Lower borrowing costs, plus plenty of latent demand, are the primary reason for the upturn in first-tier cities, where better-paid jobs bring population inflow, said Li Yujia, an analyst with the Shenzhen Real Estate Research Center.

Earlier this month, taxes on some property transactions were slashed and further reductions to the minimum down payments for first- and second-time home buyers were announced.

Though the loosening was mainly limited to non-top-tier cities, it led to broad anticipation for higher prices and more easing.

The central bank this week cut reserve requirement ratios for banks by 0.5 percentage points, which is expected to further boost money supply and increase leverage for the housing market.

With sentiment growing positive and the stock market in turmoil, properties in major cities have been viewed as a safe heaven by investors and speculators, said Li.