Average new home prices across the country dropped 0.2 percent in January from a month earlier, compared with a decline of 0.3 percent in December and a drop of 0.2 percent in both November and October, according to a Reuters weighted average home price index based on official data released on Saturday.
Prices fell in January, month-on-month, in 47 of the 70 cities monitored by the National Bureau of Statistics, and remained unchanged in the rest, a sharp contrast with a year ago when new home prices fell in only three of them.
"The Chinese government's tightening policies have been effective at reducing fears of a property bubble," Mark Budden, China head of EC Harris, a global asset consultancy, said after the figures were released.
However, as Europe's sovereign debt crisis festers, the new challenge for China is how to engineer a soft landing. If the country's export growth falters, it will probably need to relax its property tightening measures and even roll out a fiscal spending package to stimulate growth, some economists say.
"Beijing needs to keep a good balance between preventing property prices from rising too precipitously and imposing restrictions that could slow the economy excessively," Budden added.
For now, the top leadership does not seem too worried about a sharper-than-expected economic slowdown.
On the contrary, the central bank warned against a possible rebound in consumer inflation and the government arm-twisted the eastern city of Wuhu into suspending a plan to relax home purchase restrictions last week.
LUNAR EFFECT
New home prices remained higher than a year ago on average, but annual home price inflation eased sharply to 0.5 percent in January from December's 1.4 percent, the lowest in the history of the Reuters weighted index, which started in January 2011 when the NBS stopped providing nationwide home price changes.
In year-on-year terms, new home prices were still up in 53 of the cities, and down in 14.
Wenzhou, a highly speculative market that was recently hit by a private financing crisis, suffered the sharpest fall in new home prices in January, dropping 0.6 percent from a month earlier and 7.6 percent from a year earlier.
The Lunar New Year holiday, which fell in late January this year but early February last year, during which developers and other businesses pause operation for weeks, may distort home inflation and other economic data. But economists polled by Reuters last month see prices falling 10-20 percent this year.
That has started to bite. Developers need to cut prices further if they want to sell down their record pile of inventories, and most have declared they will slow expansion to survive a downturn that they do not see ending any time soon.
"We feel the central government wants to strengthen market expectations for a long-term property tightening stance," Wu Tao, chief executive of Wins Investment, the fund arm of Chinese developer Gemdale, told Reuters on Thursday.
LOOSENING AROUND EDGES
That could contribute to further slowing of the world's fastest-growing major economy.
Real estate investment, which accounts for about an eighth of gross domestic product (GDP), grew just 12.3 percent in December from a year earlier, compared with rises of more than 30 percent in the early months of 2011. Some economists expect it to swing to contraction in the early months of this year.
That, together with weakening export growth, will probably drive Chinese GDP growth below 8 percent in the first three months of this year after it hit a two-and-a-half-year low of 8.9 percent in the last quarter of 2011.
Another effect is that falling land sale revenues are hitting local governments' balance sheets, meaning officials will probably argue for a relaxation of the tightening policies when they converge on Beijing in early March for the annual meeting of the rubber-stamp parliament.
Yet Premier Wen Jiabao appears determined to win the last important battle against runaway home prices before he leaves office in early 2013, saying last week that the government would continue to take steps to curb speculation in housing to bring prices to a reasonable level.
A spike in consumer inflation to a consensus-busting 4.5 percent in January also means policy makers will not relax their guard on containing prices.
However, authorities appear to be loosening housing policy around the edges to ensure normal homeowners are not hurt by the efforts to contain speculation. The central bank said this month banks must support first-time home buyers, as well as the construction of both affordable and ordinary homes.
Domestic media also reported that with liquidity improving, banks had lowered mortgage rates to people buying their first homes and quickened approvals of mortgage applications.
