China's average new home price fell last month from a year earlier, the first decline in two years, raising investors' hopes that property calming policies may soon be eased.
New home prices fell 0.7 percent, according to Reuters' calculation using data published by the National Bureau of Statistics on Wednesday. They fell in 37 of the 70 cities the bureau monitors, widening from 27 in February.
"The falling home price is gradually increasing the room for further policy relaxation, not only regarding the property sector," Shi Qi, a CEBM analyst in Shanghai, told Reuters. "The real estate market remains the biggest drag on economic recovery."
The March month-on-month fall of 0.3 percent means the average new home price has fallen for six consecutive months.
Premier Wen Jiabao said last month that home prices, which have soared 10-fold in the last decade, remained "far from returning to reasonable levels".
Analysts polled by Reuters earlier this year predicted average home prices would fall by 10-20 percent in 2012, a pace modest enough to prevent a hard landing of the economy.
Chinese property shares rose 1.64 percent in the morning alongside a 1.33 percent rise in the benchmark Shanghai stock index, reflecting a sense that a turning point in the property policy cycle might be near.
The consensus among economists is that the broad economy hit the bottom of its current down cycle - the longest sequential slowdown since the 2008-09 global financial crisis - in the first quarter.
Data last week showed that annual GDP growth eased to 8.1 percent in Q1 from 8.9 percent in Q4 2011, undershooting expectations of 8.3 percent growth and leaving China on track to experience its slowest full year of growth in a decade.
The GDP data underscored the view of investors that the government's pro-growth fine-tuning of policies will be enough to avoid a hard economic landing, although a rebound in growth might be shallow and unlikely to kick in until the second half of the year.
The IMF's new World Economic Outlook report forecasts full-year growth for China of 8.2 percent, unchanged from its last report. Its sister organisation, the World Bank, last week cut its view on growth to the same level from 8.4 percent previously and said the rebound might not start before Q3.
How and when to loosen settings on property is a particular problem for Beijing -- acting too early may lead to an immediate rebound in speculative activity and stoke broad inflation.
Moving too late risks an abrupt slowdown of the economy and a supply-induced upward price squeeze in one or two years.
Real estate investment, which accounted for 13 percent of the economy and affects 40 other industries, grew 19.6 percent in March from a year earlier, down from a rise of 27.8 percent in the first two months.
FALLING PRICES, UPWARD RISK
New home prices dropped 0.8 percent in both Shanghai and Beijing in March from a year earlier, versus a decline of 0.4 percent in February in both cities.
The eastern city of Wenzhou, recently plagued by private business failures, suffered the biggest slump of 9.0 percent in new home prices in March from a year earlier.
The drop was mainly due to developers resorting to price cuts to boost sales, said Ma Xiaoming, the bureau's senior statistician, noting that some commercial banks lowered mortgage rates for people buying their first homes, spurring demand.
Weak sales and record inventories as well as worsening balance sheets have pushed developers to deepen price cuts while slowing down the pace of new construction.
The bureau's data also showed that in month-on-month terms, new home prices fell in 46 cities last month. But they rose in eight other cities in March, up from only three in February and none in January.
"The upward pressure in home prices still exists and the property tightening is at a critical phase," Ma warned.
Some economists fear a deflationary trend could discourage real estate investment, posing downward risks for the world's No.2 economy.
"I'm worried about negative annual growth in both property sales and construction in March - the government should start fine-tuning policies," said Jianguang Shen, chief China economist at Mizuho in Hong Kong.
"The ultimate goal of the property tightening is to drive down prices but maintain growth in construction and investment."
