China’s effort to cool home prices is damping the market for existing homes, with prices in May falling from the previous month in 23 of 70 cities measured.

That’s more than the 16 cities that posted declines in April, data from the National Bureau of Statistics posted to its website June 18 showed. Existing home prices in Beijing fell 0.2 percent from April while those in Shanghai increased 0.2 percent. The price of new homes, typically sold by developers, rose last month in 67 of the 70 cities monitored.

Authorities in China and Hong Kong are stepping up property curbs amid concern prices are becoming unaffordable. China on June 14 ordered banks to hold more money as reserves for the sixth time in 2011 as it fights to contain inflation.

“Government measures work better in the existing home market because the strict home purchase restrictions effectively restrain some purchasing power,” Jeffrey Gao, a Shanghai-based property analyst at Royal Bank of Scotland Plc, said in a phone interview. “Developers on the other hand are not in a rush to cut home prices as they watch the direction of government policies.”

The slowing home price growth in the market for existing homes may force more property agencies out of business, said Gao. Midland Realty Ltd. said it will close all of its branches that broker existing homes sales and rentals in Shanghai, because the company “isn’t optimistic” about the market in the city, China Business News reported on May 9, citing Ding Wei, a company official.

Slower Gains

Price increases for new homes slowed last month in big cities such as the capital of Beijing, the statistics bureau said. Efforts to rein in property prices have been focused on the nation’s largest urban areas. A total of 29 cities posted increases exceeding 5 percent, down from 33 cities in April, according to the bureau’s data.

New-home prices in Beijing rose 2.1 percent in May from a year earlier, while those in Shanghai climbed 1.4 percent, the statistics bureau said. The biggest gains last month were in smaller cities including Urumqi, Mudanjiang, Lanzhou and Qinhuangdao, which all posted increases of at least 7.7 percent, according to the data. Prices in northeastern China’s Dandong rose 9.7 percent in May, the most among the 70 cities monitored.

Compared with the previous month, new home prices fell in nine cities in May, the same number as in April.

Developers may cut home prices in the second half of the year after facing a drain on cash flow, Gao said.

Outlook Cut

Chinese developers’ outlook was cut to “negative” from “stable” by Standard & Poor’s on June 15 on concern tighter credit and further government curbs may lead to rating downgrades in the next year. Property sales may start to slow as the government’s policy “starts to bite,” leading to price cuts that may drive home prices 10 percent lower in the next 12 months, the credit rating company said.

Some developers such as China Vanke Co. and China Overseas Land & Investment Ltd. started to cut prices in some Chinese cities, and more may follow suit in the second half of this year, according to Credit Suisse Group AG.

“Developers are still watching to see how strict the government’s property measures will be before cutting prices,” said Shen Jian-guang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., in a phone interview. “The slowdown of existing home prices is showing the government’s home purchase restrictions are having some effect.”

Hong Kong’s home prices are “quite frightening” as growing wealth in China fuels increases of 2 percent a month, the city’s Chief Executive Donald Tsang said in an interview in Melbourne June 17. Savills Plc ranks Hong Kong as the world’s most expensive place to buy an apartment.