Lower interest rates, down payments help the market stabilize; first-tier cities fare best

New home prices in major Chinese cities rose month-on-month in June for the second straight month, a private survey showed on Wednesday.

The average price in 100 cities rose 0.56 percent month-on-month to 10,628 yuan ($1,715) per square meter, the China Index Academy, a research unit of SouFun Holdings Ltd, said in a report.

The gain accelerated from 0.45 percent in May, which was the first rise since January. Leaving aside the uptick in January, this price index has been declining for the past 12 months.

The slow but steady recovery of the property market was in stark contrast to the volatility of the equity market during the past two weeks.

Since April, there has been a sustained improvement in both sales and prices after the central government lowered the minimum down payment on second homes nationwide at the end of March. The People's Bank of China, the central bank, announced on Saturday its latest cut in benchmark interest rates, the fourth such move since November.

The PBOC's weekend cut of 0.25 percentage point brought the benchmark rate for loans of five years or longer, which is the maturity of most mortgages, to 5.4 percent. That is the lowest since at least 1991, and it is even lower than during the global financial crisis.

The previous cut on May 11 helped boost property sales.

The academy data showed new home prices strengthened from May in 53 of the 100 cities it monitored, up from 48 cities a month earlier. The largest price increase (6.58 percent) was in Shenzhen, the fastest monthly gain since the data series began in 2010.

Of the major 10 cities monitored, all saw price increases except for Chongqing and Guangzhou.

Prices of pre-owned housing in major cities, which respond more swiftly to changes in sentiment, staged a more robust upturn. Shenzhen again led the growth, with a whopping 8.59 percent gain, the fastest pace since 2011. Shanghai rose 2.11 percent and Beijing rose 0.96 percent.

Prices in Shanghai and Shenzhen have already recovered their earlier losses and are higher than a year ago.

In Beijing, sales of pre-owned homes in the first 28 days of June hit 16,086 units, up 5.8 percent from the same period of May and 170 percent higher than a year earlier, according to Homelink, the city's largest broker of pre-owned apartments.

"We expect downward pressure on home prices will continue to ease gradually through 2015 as developers manage to reduce their inventories. We expect modest year-on-year growth of up to 5 percent in the value of nationwideproperty sales over the next 12 months," said a report by Moody's Investors Service Inc. The ratings agency changed its outlook for the China property industry to stable from negative on June 1.

Driving the recovery is consumers' increasing willingness to buy homes. A quarterly household survey by the central bank showed in the second quarter, 14.7 percent of respondents said they planned to buy homes in the following three months, up 0.9 percentage point from the first quarter.