China's residential property market showed a marginal improvement over the past month, with the pace of decline in new home prices easing compared to the previous month. However, economists and market analysts believe the housing sector is still unlikely to witness a broad-based recovery as weak demand, subdued consumer confidence and limited policy support continue to weigh on the market. 
According to calculations by Reuters based on data released by China's National Bureau of Statistics (NBS), new home prices declined by 0.1% month-on-month in June, improving from the 0.2% monthly fall recorded in May. On an annual basis, new home prices fell 3.3%, compared with a 3.5% year-on-year decline in the previous month. 
China's property sector has remained under pressure for nearly five years, following a prolonged downturn triggered by tighter borrowing rules for developers, mounting debt defaults and slowing homebuyer demand. The prolonged weakness has affected household spending, reduced consumer confidence and widened the imbalance between the country's strong industrial production and relatively weak domestic consumption. 
Recent official economic data also showed that China's economy expanded by 4.3% year-on-year during the second quarter, slower than market expectations, reflecting continued pressure from weak domestic demand despite resilient exports. 
Sarah Tan, Economist at Moody's Analytics, said China had entered the second half of the year under more challenging economic conditions, with domestic demand remaining weak while external risks continued to increase. She added that although exports had remained an important source of economic growth, they could not support the economy on their own. 
Analysts remain divided on the outlook for the housing sector. Some believe the market may be approaching its lowest point after several years of decline, while others argue that a meaningful recovery will remain difficult without stronger policy intervention from the central government and a sustained improvement in buyer confidence. 
Data released so far this year indicates that China's largest cities have shown modest stability in both new and existing home prices. However, many developers operating in smaller cities continue to face sluggish sales despite government efforts to reduce excess housing inventory and encourage property purchases. 
Zhang Dawei, Chief Analyst at Centaline Property Agency, said the property market was likely to witness only isolated periods of improvement during the second half of the year rather than a nationwide recovery. He noted that stronger demand would likely remain concentrated in prime markets, while weaker cities could continue to struggle. 
Among different city categories, new home prices and existing home prices in China's tier-one cities increased by 0.1% and 0.3% respectively on a monthly basis during June. In contrast, both new and resale home prices in tier-two and tier-three cities remained largely unchanged from the previous month. 
Despite the monthly improvement in major cities, annual home prices continued to decline across all city categories, although the rate of decline narrowed in tier-one cities. 
Market participants are also closely watching China's upcoming Politburo meeting for policy direction. Jeff Zhang, an analyst at Morningstar, said expectations for large-scale stimulus remain low. Instead, authorities are likely to continue focusing on targeted city-level measures and adjustments to the housing provident fund to support homebuyers. 
He further said the government's current strategy is aimed primarily at containing financial risks, adding that the property sector is no longer expected to serve as the main driver of China's economic growth, making broad nationwide stimulus unlikely. 
The central government's cautious stance has also been reflected in recent policy messaging. In an article published recently by Qiushi, the official journal of the Chinese Communist Party, policymakers stressed the need to strengthen household balance sheets and stabilise the real estate market to prevent falling asset prices from further weakening consumer confidence. 
Although local governments across China have introduced various incentives to encourage home purchases in recent months, Beijing has so far avoided launching nationwide stimulus measures. Analysts believe stronger export performance has reduced the immediate need for broader economic support, allowing policymakers to rely on more targeted interventions. 
Official data also showed that property sales, real estate investment and new construction starts all recorded faster declines during the first half of the year, highlighting that the sector continues to face significant challenges despite signs of moderation in home price declines. 
Source Reuters