BEIJING (Reuters) - New home prices in China rose at their fastest pace in five months in May, complicating government efforts to keep frothy housing markets under control as it rolls out more stimulus for the slowing economy.

FILE PHOTO: A woman rides a tricycle carrying a child near a residential compound in Beijing's Tongzhou district, China, February 25, 2016. REUTERS/Jason Lee/File Photo

Average new home prices in China’s 70 major cities rose 0.7% in May from the previous month, picking up from a 0.6% rise in April and the quickest pace since December, according to Reuters calculations based on National Bureau of Statistics (NBS) data on Tuesday.

That marked the 49th straight month of price gains. Sixty-seven of the total 70 cities surveyed by the NBS reported higher prices in May, the same as April.

On an annual basis, home prices increased 10.7% in May, unchanged from April’s growth rate.

Beijing has repeatedly urged local governments to keep runaway prices under control, but a recent easing in credit conditions, pent-up demand for housing, and an implicit government mandate to prevent a collapse have kept the market surprisingly resilient.

But further curbs on home buyers would risk adding to pressure on China’s economy, which has seen sales slowing due to weaker domestic demand and an escalating trade war with the United States.

Data last week showed the biggest drop in property sales in nearly two years in May, and markedly slower growth in investment and new construction starts, pointing to further economic weakness ahead and more government growth boosting measures.

“If the market becomes overheated policymakers will definitely rush to regulate it,” Zhang Dawei, a Beijing-based analyst of property consultancy Centaline, wrote in a note.

Top Chinese officials including Guo Shuqing, chairman of China’s banking regulator, have warned in recent weeks that Beijing must remain vigilant about property bubble risks.

“History has proven that countries and regions that are overly-reliant on real estate for economic development will ultimately have to pay a heavy price,” Guo told a forum in Shanghai last week.

Some developers have sought to promote sales by cutting prices, which has raised alarm. The Chinese city of Enshi tried to stabilize house prices by urging developers to halt drastic price cuts, threatening punishing measures unless such “wrong behaviors” stopped.

RISKS OF POLICY EASING

China’s home price growth has slowed significantly since the second half of 2017 due to intensive local curbs on speculative investments.

But the trends have been uneven across the country, with recent signs of resurgent price pressures. Some smaller cities with rising inventories have quietly loosened restrictions on home buyers to prop up consumer confidence and demand.

Mortgage rates have also been coming down in some areas in response to regulators’ calls on banks to ramp up lending to support the economy.

The average interest rate on first home loans continued to drop in May to the lowest level since 2018, according to a market report cited by state-backed Economic Information Daily.

New household loans - mainly mortgages - still remained elevated, totaling 662.5 billion yuan ($95.70 billion) in May, and accounting for 56.14% of total new loans last month.

Higher prices were mainly driven by the smaller tier-3 cities, up 0.8% on a monthly basis compared with a 0.5% gain in April, the statistics bureau said in a note accompanying the data.

Prices in China’s four top-tier cities - Beijing, Shanghai, Guangzhou and Shenzhen - saw slower growth in May, increasing 0.3% versus 0.6% growth in the previous month.

Tier-2 cities, which include most of larger provincial capitals, grew 0.6%, unchanged from the rate a month earlier.

Xian, the capital of Shaanxi Province in western China with a population of over 7 million, became the top market performer in May, with prices surging 2% on-month.

Centaline’s Zhang estimates various Chinese government entities announced 41 tightening measures at the city level in May.

“It is still a whack-a-mole game and the intensity of policy tightening so far has not exceeded market expectations,”

“But to a certain extent, these policies will alleviate some upward pressure on the prices.”