BEIJING (Reuters) - China's new home prices picked up slightly in October, led by sustained gains in smaller cities and suggesting a key driver of economic growth remained resilient, although investor caution points to moderation heading into 2019.
Average new home prices in China's 70 major cities rose 1.0 percent in October from a month earlier, a touch higher than the previous month's reading of 0.9 percent, according to Reuters calculations based on an official survey on Thursday.
While the sector's solid growth could cushion the impact of a government crackdown on debt and escalating U.S. trade tensions, analysts warn of challenges in coming quarters as property investment further slows and sales contract.
The prices gains were mostly driven by China's 35 smaller cities, which posted an average price increase of 1.1 percent in October, accelerating from 0.9 percent in the previous month, the National Bureau of Statistics (NBS) said in a statement accompanying the data.
China's long-term campaign to modernise housing developments across the country has also sustained the property market. Analysts say the so-called shanty-town redevelopment project has boosted property demand as residents use any cash compensation to buy a new home when their existing one is demolished.
"The difference in price gains is very pronounced, with transactions in central and western China supporting the growth," said Zhang Dawei, analyst at Hong Kong-based real estate research consultancy Centaline.
"With inventories in those regions depleted, investment demand still high, and the shanty-town redevelopment programme ongoing, price gains there have risen above the national average."
China has injected billions of yuan into its shanty-town redevelopment programme through the central bank's so-called Pledged Supplementary Lending (PSL) facility. The funds are largely used as cash compensation to residents whose old homes are being demolished.
In October, price gains in provincial capitals Guiyang, Shijiazhuang and Wuhan were the biggest among the 70 cities surveyed by NBS.
China's 31 tier-2 cities - which include provincial capitals - saw an average price increase of 1.0 percent in October from a month earlier, slowing from the previous month even though more tier-2 cities posted gains than in September.
China's four biggest cities of Beijing, Shanghai, Shenzhen and Guangzhou posted no change in their prices.
The data confirmed the 42nd straight month of price increases, Reuters calculations showed, defying tougher curbs designed to rein in a near-three year real estate boom that has spilled over from megacities to the hinterland.
In a sign strength remains broad-based, 65 out of the 70 cities surveyed by NBS reported a monthly price increase for new homes, compared with 64 in September.
Compared with a year earlier, new home prices rose 8.6 percent, the fastest pace since July last year and quickening from September's 7.9 percent gain.
China's property market has been relatively resilient, despite tighter property curbs, as many investors exploited regulatory loopholes and turned to smaller and less-restricted cities.
A slowdown in broader economic momentum, however, is feeding through to parts of the property sector, a key driver of gross domestic product. In the third quarter, China's economy expanded at its weakest pace since the global financial crisis.
Growth in China's real estate investment in October slowed to a 10-month low and home sales fell again, as developers held back expansion plans in the face of softening economic conditions.
"Despite stable property price inflation in October, we expect the property sector to cool significantly in 2019," said economists at Nomura in a note.
"Tightening measures in large cities will not be reversed quickly unless there are signs of a sharp decline and support from PSL to lower-tier cities cannot continue indefinitely."
Market sentiment has turned more cautious since the start of the second half of this year following a surge in failed land auctions.
Transactions fell sharply over the period dubbed "Golden September and Silver October", traditionally a high season for new home sales.
Central bank data this week showed household loans, mostly mortgages, fell to 563.6 billion yuan in October from 754.4 billion yuan in September.
Some banks have recently lowered mortgage interest rates by 5 to 10 basis points for first-time property buyers, a likely spill-over effect from Beijing's recent moves to cut banks' reserve requirements to boost market liquidity, and mortgage loans have been issued at a faster pace nation-wide.
(Reporting by Cheng Fang, Stella Qiu and Ryan Woo; Editing by Sam Holmes)