Chinese border town with North Korea leads house price rally in May

By Yawen Chen and Ryan Woo

BEIJING (Reuters) - China's home prices in May logged their fastest growth in nearly a year, defying persistent government curbs, with prices in the northern town of Dandong on the border with North Korea soaring the most as geopolitical tensions ease.

Average new home prices in China's 70 major cities rose 0.7 percent in May from the previous month - the best pace since June 2017 - compared with a 0.5 percent increase in April, according to Reuters calculations based on official data published by the National Bureau of Statistics (NBS) on Friday.

The market rebound suggests buyers are targeting smaller cities even as the government steps up measures to clamp down on speculation, underscoring the challenges Beijing faces in keeping the property market in check against competing interests from local governments who still rely on real estate for growth.

Dandong city was the top price performer for the second month in a row in May, growing a robust 5.3 percent or about seven times the national average, data showed, as investors bet on a rapid opening up of North Korea's isolated economy.

Most of the 70 cities surveyed by the Statistics Bureau still reported a monthly rise in prices for new homes. Sixty one cities posted higher prices in May, up from April's 58.

Compared with a year earlier, new home prices rose 4.7 percent, unchanged from growth in April, according to the NBS.

"An increasing number of cities have adopted policies that have weakened the existing curbs, such as the talent campaign that allows more out-of-towners to qualify as local and the lottery system that creates arbitrage opportunities," said Zhang Dawei, an analyst with Hong-Kong based property agency Centaline.

Zhang expects a fresh wave of new tightening measures by more cities in the next two months.

SMALLER CITIES ON RADAR

The biggest gains were seen in China's 31 provincial capitals, often categorised as "tier-2 cities", with prices up 0.9 percent in May from April, NBS said in a commentary accompany the data.

Prices in smaller tier-3 and tier-4 cities increased 0.7 percent, it said.

Some analysts noted price gains could also be due to more expensive housing entering the market as cash-strapped developers, who held off projects to comply with official price caps, roll them out as financing pressures mount.

China has been battling against an overheating property market for more than two years but policymakers have also been careful not to tap the brakes too hard as real estate remains a major growth engine.

The NBS said over 40 cities rolled out new tightening measures in May to rein in a market rebound.

But Yang Weimin, former deputy head of the Office of the Central Commission for Financial and Economic Affairs, feels current administrative property tightening measures are no longer effective in stemming speculation.

The percentage of China's empty homes is higher than that of Japan, which calls for more fundamental reforms such as property tax and an empty-home index to accurately guide market expectations, he told a forum in Shanghai, according to a transcript posted online.

There are growing signs that some local governments are modestly easing policy in response to cooling economic growth.

Reuters reported last month that local authorities in several major Chinese cities had begun to ease restrictions on pre-sales of new apartment buildings, and in some cases, allowed developers to raise prices slightly.

The China Securities Journal said in a front-page commentary on Friday, however, that curbs on the property market should remain tight. A bubble still exists in some hotspot cities, showing the need for stronger policies, the newspaper said.

(Reporting by Yawen Chen and Ryan Woo; Additional Reporting by Min Zhang; Editing by Jacqueline Wong)