(Aug 15): China’s home-price downturn abated in July, a sign that the government’s most forceful effort to revive the market is beginning to take hold.

New-home prices in 70 cities, excluding state-subsidised housing, fell 0.65% from July, narrowing from a 0.67% decline a month earlier, according to the National Bureau of Statistics on Thursday. Values of existing homes dropped 0.8%, compared with a 0.85% slide a month earlier.

The shift is expected to offer some relief for China’s economy, where officials are targeting a 5% growth this year. The property crash has hindered growth despite a flurry of support measures, just as economic gauges including consumer prices suggests lingering deflation pressure.

“The stepped up support for the property sector has evidently lifted buyer sentiment up,” said Meng Xinzeng, a researcher at China Index Holdings. “In the second half of this year, home markets in Tier-1 cities are likely to improve mildly, while a selective number of Tier-2 ones may see their home markets reach a bottom.”

That said, China’s housing market is still in the depth of a downturn. The new home price year-on-year change index is at its lowest since June 2015.

A gauge of Chinese developer shares have slid further into a bear market, dropping about 34% from a mid-May high.

The International Monetary Fund (IMF) called on China to deploy “one-off” fiscal resources to complete and deliver pre-sold properties or compensate homebuyers, according to an annual review of the Chinese economy published earlier this month. The IMF put the cost at the equivalent of 5.5% of gross domestic product (GDP) over four years, which would amount to almost US$1 trillion (RM4.44 trillion) based on last year’s GDP, according to Bloomberg calculations.

The IMF’s assessment hints at the scale of the challenge facing China, as it endures a prolonged housing downturn but remains reluctant to unleash a large fiscal stimulus. The country ruled out the solution in an official response included in the report.

China has at least 48 million homes that were sold before being built, according to estimates from Bloomberg Intelligence.

Investors and analysts have remained sceptical that the easing measures unveiled in late May — including encouraging local governments to buy unsold homes — will be sufficient due to the limited central bank funding revealed so far and the slow progress of existing trial programmes in several cities.