* July new home prices +0.4 pct m/m vs +0.7 pct in June
* Yearly growth in July +9.7 pct vs June +10.2 pct
* Small city boom “a trap” - analyst
* Property curbs may persist longer term - developer (Adds city with fastest home price growth)
By Yawen Chen and Ryan Woo
BEIJING, Aug 18 (Reuters) - China’s home price growth slowed in July, with Beijing declining for a second straight month, reinforcing expectations that property price growth may stagnate over the course of the year.
Government restrictions to keep prices in check weighed on larger cities, with July showing the slowest growth since August 2016, while smaller centres pulled back but remained robust.
Policymakers have prioritised stabilising the property market ahead of an autumn leadership reshuffle, stressing the need to avoid dramatic price fluctuations that could threaten the financial system and harm social stability.
As China’s home price rises have generally been moderating and sales are slowing, analysts do not see a major risk of a sharp price fall or crash, given the strength of underlying housing demand.
“We need the administrative measures in the short term but keeping them long-term would be a retreat for the market economy,” said Joe Zhou, Head of Research for China at Jones Lang LaSalle.
Nonetheless, developers expect the curbs to be longer-term.
Ouyang Jie, vice-president of Shanghai-listed Future Land , believes the controls will be in place for the next five years, under the new government that follows a leadership reshuffle in the autumn.
“We think the current restrictions on purchases, borrowing and price growth will continue for five years, but the price cap over new units may be relaxed gradually over the years,” he said.
Analysts say the speculative switch to smaller cities and their large housing overhang has resulted in an alarming rise in debt in those centres.
Beihai, a small port city in the Guangxi region on China’s southwest coast, had the biggest monthly price increase of 1.5 percent in July and posted robust annual growth of 14 percent.
“I think the small city boom is a trap,” JLL’s Zhou said. “It won’t last long because I don’t see the possibility of a huge drop in inventory there while there is not enough population inflow to support demand.”
While the statistics bureau says the housing market should still be able to maintain stable growth, many economists expect the residential sector to lose momentum in the second half of the year in the face of policy tightening and an official financial deleveraging campaign.
Average new home prices in China’s 70 major cities rose 0.4 percent in July from the previous month, slowing from the 0.7 percent growth in June as policymakers battled to rein in demand.
In China’s biggest markets, Beijing’s new home prices fell 0.1 percent in July, after declining 0.4 percent in June. Shanghai prices stalled while Shenzhen prices fell by 0.2 percent from a month ago.
Compared with a year ago, new home prices rose 9.7 percent in July, easing from a 10.2 percent gain in June and marking the slowest growth since August 2016, Reuters calculated from National Bureau of Statistics (NBS) data.
New construction starts measured by floor area, a telling indicator of developers’ confidence, contracted for the first time since last September, falling 7 percent in July from a year ago, compared to a 14 percent increase in June.
Household loans, mostly mortgages, fell to 561.6 billion Chinese yuan ($84.13 billion) in July from 738.4 billion yuan in June, according to Reuters calculations based on central bank data.
But household loans as a proportion of total new loans rose to 68 percent from 48 percent in June, suggesting banks were more exposed to the property market even though it cooled in July.
($1 = 6.6756 Chinese yuan renminbi)
Reporting by Yawen Chen and Beijing Monitoring Desk; Additional Reporting by Stella Qiu; Editing by Eric Meijer