Home prices in the majority of China's 70 large and medium-sized cities dropped month-on-month in December but the housing market is expected to recover gradually as the country recently rolled out supportive policies.

In December, 55 of the 70 cities saw month-on-month declines in new home prices, compared with 51 in November. New home prices in first-tier cities remained flat month-on-month, compared with a decrease of 0.2 percent in November, said Sheng Guoqing, chief statistician with the urban division of the National Bureau of Statistics, on Monday.

"China's real estate market is expected to bottom out in the second quarter of 2023 and major cities are likely to take the lead in market stabilization," said Lian Ping, chief economist at Zhixin Investment and head of the Zhixin Investment Research Institute.

"The overall housing finance policy will further rebound this year to boost housing demand. Mortgage rates are expected to remain at a record low and commercial banks will accelerate mortgage loan extensions," Lian said.

Home prices in some of the hottest property markets are likely to stabilize and rise in the second quarter while the decline in land prices may narrow, and real estate investment will pick up later, he said.

China has unveiled a series of policies to bolster the property market in a bid to revive the real economy. Its financial regulators recently drafted and proposed a plan to improve the balance sheets of quality property developers facing liquidity issues, as part of efforts to defuse financial risks in the real estate sector.

The plan aims to improve cash flows of quality property developers and guide their balance sheets to return to a safe range, said Zou Lan, head of the monetary policy department of the People's Bank of China, at a news conference on Friday.

The PBOC, the central bank, is considering launching several structural monetary policy instruments to stabilize operations of the real estate sector, Zou said.

"With the effects of policies on both the supply and demand sides of the real estate sector being released continuously, quality property developers will be revitalized," said Wen Bin, chief economist at China Minsheng Banking Corp.

"The sector is likely to embrace a wave of restructuring activities and acquisitions, and risks to the sector will be further mitigated. In addition, housing finance will further pick up, thus promoting a slight drop in home purchasing costs," Wen said.

The real estate market is expected to hit bottom and rebound in the first half. By that time, the property sector will once again have a stabilizing effect, rather than a dragging effect, on the economy, he said.

The central bank and the China Banking and Insurance Regulatory Commission have also decided to establish a dynamic adjustment mechanism on mortgage rates for first-time homebuyers to further support the property sector.

For cities where the selling prices of new homes fall month-on-month and year-on-year for three consecutive months, the floor on mortgage rates can be lowered or abolished for first-time homebuyers in phases, the PBOC said.

Yan Yuejin, director of the Shanghai-based E-house China Research and Development Institution, said 35 out of the 70 cities meet the requirements of lowering the floor on mortgage rates for first-time homebuyers, according to data from October to December.

"The current newly constructed commodity residential housing price index indicates that home prices have the foundation to become stabilized but the foundation is not yet solid enough," Yan said.

The authorities' thinking on stabilizing home prices is clear. On the supply side, measures to improve the balance sheets of quality property developers are expected to be announced soon. As the money is coming into place, real estate pricing will stabilize. On the demand side, a new round of policies stimulating home purchases is on the way, he said.

Stabilizing home prices will remain a vital task in 2023. It is an essential condition for stabilizing market expectations and promoting the steady development of the housing market, he said.

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