China March new home prices up at fastest pace in 21 months

China’s new home prices rose in March at the fastest pace in 21 months, official data showed on Saturday, suggesting the market is out of the doldrums amid a flurry of support policies, but there is uncertainty on the strength of the momentum.

New home prices in March edged up 0.5% month-on-month after a 0.3% rise in February, marking the fastest pace since June 2021 and the third consecutive monthly rise, according to Reuters calculations based on National Bureau of Statistics (NBS) data.

Prices in annual terms showed the smallest drop since June 2022, down 0.8% in March after a 1.2% decline in February, the 11th month of declines on an annual basis.

“The housing price index shows a trend of stabilization and recovery, fully indicating the overall real estate is out of last year’s trough,” said Yan Yuejin, an analyst at the Shanghai-based E-house China Research and Development Institution.

Strong home sales in March drove up an improvement in house prices, said Yan.

The property sector, accounting for roughly a quarter of China’s economy, was hit hard last year as a regulatory crackdown on developers’ high debt levels snowballed into a financing crunch, stalling construction on housing projects. Some buyers boycotted mortgage repayments, further weakening consumer sentiment amid tough COVID restrictions.

Major cities have seen a rebound in home sales over the past month, as pent-up demand was unleashed after China abruptly rolled back COVID curbs in December.

Among 70 cities surveyed by the NBS, 64 cities saw an uptick in new home prices in monthly terms, the most cities since May 2019 and up from 55 in February.

The increase in house prices was broad-based among all city tiers which all extended their month-on-month gains.

However, analysts say it is still too early to tell whether the nascent property recovery will be sustained, because of the uncertainty over consumer confidence.

“The property sector recovery should be gradual and bumpy, due to the challenging demographic trend, still-tight financing conditions for troubled developers and policymakers’ long-held stance that ‘housing is for living in, not for speculation’,” said analysts at Goldman Sachs commenting on the data.

Last month, more than 50 cities introduced stimulus policies or relaxed some property rules, including subsidies, more housing provident funds and easing home purchase curbs.

“The biggest problem in the economy is insufficient demand with increasing deflationary pressure, the continued stabilization of real estate is critical as recent data showing sales growth has slowed,” said Wu Jinhui, analyst at CSCI Pengyuan Credit Rating Limited.

“In the second quarter, there is room for policy relaxation on both the supply and demand side, such as a balance sheet improvement for high-quality property firms, smaller down payments and cuts in mortgage rates.”

Credit data this week suggested the growth of household medium-to-long term loans, which are mostly mortgages, accelerated in March, in line with improved property transactions.

Earlier in April, the central bank released a quarterly survey of urban depositors that showed 17.5% of respondents have plans to buy a home during the next three months, up from 16% in the previous quarterly survey.

China will release property sales and investment data for March on Tuesday, along with economic activity data and first quarter gross domestic product (GDP).

Separately, China’s gross domestic product likely perked up in the first quarter of the year, a Reuters poll showed on Friday, as the end of strict COVID-19 curbs helped lift the world’s second-largest economy out of a crippling pandemic slump.

GDP growth was seen speeding up to 4.0% in the first quarter from a year earlier, from 2.9% in the previous three months, according to the median forecast of 70 economists polled by Reuters. That would be the fastest growth since the first quarter of last year.

For 2023, growth was expected to pick up to 5.4%, the poll showed, from 3.0% last year - one of its worst performances in nearly half a century due to strict COVID-19 curbs.

Recent data shows the economy is staging a gradual but uneven recovery, led by consumption, services and infrastructure, but slowing inflation and surging bank savings raise doubts over the strength of a pick-up in domestic demand.

“We have seen dividends from COVID policy shift on consumption and investment, including stronger than expected exports,” said Zhang Yiping, economist at China Merchants Securities in Shenzhen.

“Domestic demand is improving but the strength of the recovery is not sufficient.”

Policymakers have pledged to step up support for the world’s second-largest economy, which is rebounding after disruptions caused by a sudden lifting of COVID-19 curbs in December.