Potential homebuyers view models of housing projects at a real estate fair in Qingdao, Shandong province. Hong Wu / Getty Images

Housing market progresses into 'correction phase' after two years of continuous increases, report says

Home prices slid for a second straight month in June, said an unofficial survey published on Tuesday, stoking fears that the slowdown might turn into a prolonged decline.

The China Real Estate Index System survey showed that average prices in China's 100 biggest cities fell 0.5 percent month-on-month in June, 0.18 percentage point faster than the 0.32 percent decline in May.

Among the 100 cities, 79 saw prices go down, while 21 saw an increase.

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"Judging from the current change in prices, the market has entered into a correction phase after continued price increases over the past two years," said CREIS, which is backed by SouFun Holdings Ltd, China's largest online property information site.

On a year-on-year basis, prices still rose 6.5 percent, but that was down from a 7.8 percent gain in May, according to the survey.

A separate survey released on Tuesday by E-House China Holdings, SouFun's main competitor, showed that new home prices fell 0.06 percent in June month-on-month in 288 cities - the third consecutive month-on-month drop.

The property sector accounts for about 15 percent of Chinese GDP and directly affects about 40 other business sectors. It's thus an important factor in overall growth, which slowed to an 18-month low in the first quarter.

Governments at different levels have already moved to avert a market crash, taking such steps as pushing banks to speed up mortgage approvals and lifting some purchase restrictions.

A stabilizing factor is that prospective buyers still expect prices to rise, according to a survey released over the weekend. That's crucial in a market where prices typically follow expectations.

The survey by the China Economic Research Institute of the Capital University of Economics and Business showed that residents in all the 35 cities it polled expect home prices to rise. Similar surveys over the past three years showed that home prices tracked expectations.

"The survey this year doesn't support talk that home prices will crash," Zhang Liancheng, head of the institute, said in a statement in the survey.

CREIS said that home prices will fluctuate but mostly head lower for the rest of the year, with cities having the largest inventories facing strongest downward pressure.