New | Improved sales and reduced inventories fuel hope for China housing market recovery

A sharp increase in sales and a decline in inventories have been pulling China's housing market out of the doldrums, with analysts predicting the recovery will be sustainable this time around.

"Sales volume improved significantly in May. If the June figures remain positive, we can confirm that the market has bottomed out," said Raymond Ngai, the head of greater China property research at Bank of America Merrill Lynch, who expects further improvement in the second half of the year.

"We expect the residential market to recover, with a 5 per cent rise in nationwide sales volume to 1.1 billion square metres this year."

Average Chinese home prices will be flat at 10,542 yuan per square metre, after dropping 3 per cent last year, the investment bank forecasts.

The recovery of China's housing market has been supported by stimulus measures implemented by Beijing including interest rate cuts and the lowering of banks' reserve requirement ratios.

Christopher Yip, a credit analyst at rating agency Standard & Poor's, said more project launches and lower mortgage rates should see the market recover in the second half, with sales likely to have bottomed out in the second quarter. "However, profitability will continue to trend down, reflecting flagging prices since early 2014," he said.

Analysts' views echo the findings in the latest SCMP-Creda index, a collaboration between the South China Morning Post and property consultancy China Real Estate Data Academy. The index shows total new home sales in the 10 cities monitored jumped 10.6 per cent last month and rose for the third consecutive month. Prices in three of the four first-tier cities, with the exception of Guangzhou, reported month-on-month rises, with Shanghai up 8.13 per cent, Shenzhen 6.71 per cent and Beijing 4.76 per cent.