China's property investment weakens in August, sharp fall seen unlikely

BEIJING (Reuters) - China's real estate investment moderated in August on slower construction and home sales, as authorities' tight controls on the sector continued to take out speculative heat.

Real estate has been one of the few bright spots on China's investment front, partly due to robust sales in smaller cities where government efforts to tame hot property prices were less stringent.

A slowing property market could sharply increase the risks to China's economic outlook, especially if a tit-for-tat trade war with the United States worsens.

China's economy, the world's second-largest, is already under pressure from a vigorous multi-year government financial deleveraging campaign to tackle debt risks, and developers have faced a funding squeeze as authorities tightened lending to the sector, although funding appears to have improved of late.

Growth in real estate investment, which mainly focuses on residential but also includes commercial and office space, rose 9.2 percent in August from the same period a year earlier, easing from a 13.2 percent rise in July, Reuters calculated from National Bureau of Statistics (NBS) data out on Friday.

Property sales by floor area, a leading indicator of market demand, rose just 2.4 percent in August from a year earlier, marking a four-month low and down from a 9.9 percent gain in July. In year-to-date terms, sales rose 4 percent in the first eight months.

New construction starts measured by floor area grew at the slower pace of 26.6 percent in August from a year earlier, compared with a 32.4 percent gain in July, Reuters calculations showed.

The numbers however remained solid and funding conditions for China's real estate developers have improved as policymakers implemented growth-boosting measures that boosted overall liquidity.

Developers raised 10.67 trillion yuan ($1.56 trillion) in the first eight months, up 6.9 percent from the same period a year earlier, the NBS said. The growth rate compared with a 6.4 percent increase in January-July period.

That was partly reflected in higher land purchases by area, which rose 15.6 percent in January-August compared to a year earlier. It grew 11.3 percent in the January-July period.

"Housing investment could hold up at around 9-10 percent on average for 2018, given the notable reduction in housing inventories, strong land sales, and still-positive developer sentiment," said Tianjie He from Oxford Economics.

Daniel Yao, Head of Research for JLL China, also expects the slowdown in China's residential housing investment to be offset by the "large-scale" construction of rental housing for the rest of this year with strong government support.

August property investment still exceeded analyst forecasts for the full-year. A Reuters poll this week showed property investment was expected to grow 8 percent in 2018, faster than previously thought.

Central bank data this week showed household loans, mostly mortgages, rose to 701.2 billion yuan in August from 634.4 billion yuan in July.

($1 = 6.8469 Chinese yuan renminbi)

(Reporting by Yawen Chen and Kevin Yao; Additional Reporting by Lusha Zhang; Editing by Eric Meijer)