BEIJING/HONG KONG (Reuters) - For an economy facing its slowest economic growth in a quarter century, a 7.7 percent year-on-year rise in new home prices in December would seem to offer China some light at the end of the tunnel.

A labourer works atop a construction site of a commercial building as residential complexes are pictured in the background, in Kunming, Yunnan province, China, December 12, 2015. REUTERS/Wong Campion

But the headline number, published by the National Bureau of Statistics on Monday, masks China’s massive property problem - a vast amount of unsold apartments mainly in its smaller cities.

Property prices were rising fast in mega cities like southern Shenzhen, where prices rocketed by nearly 47 percent, Shanghai, up a healthy 15.5 percent, and Beijing, which posted a respectable 8 percent gain over a year ago.

But the recovery that began in October, after 13 months of straight decline, has only spread to just over half the 70 cities captured by official data, leaving others languishing far behind.

Wang Jianlin, China’s richest man and chairman of property and entertainment conglomerate Dalian Wanda Group, said on Monday that it could take four to five years for the market to digest the inventory in tier three and four cities.

China has some 13 million homes vacant - enough to house the families of several small countries - and whittling down the excess is among Chinese policymakers top priorities for 2016.

Dalian Wanda expects a significant decline in real estate income as it diversifies its business away from property. But, planning an initial public offering, Wang reckoned the market would manage so long as authorities took a gradual approach to the inventory issue.

“Sales are highly concentrated in first- and second-tier cities, where 36 top cities account for three-quarters of the total sales value. So the portion from third- and fourth-tier cities is very low. As long as they destock slowly, there is no problem,” he told the Asia Financial Forum in Hong Kong.

Meantime, Wang said property investment in China’s first tier cities was the most risky due to high land costs, and his firm’s real estate focus is largely on the commercial sector in the lower-tier cities.

Still, analysts reckon it will take a lot longer before the price recovery translates into growth in property investment that can help the overall economy regain momentum.

“Property investment is expected to see a single-digit decline this year despite recovering home prices, so it will continue to weigh on GDP,” said Liao Qun, China chief economist at Citic Bank International in Hong Kong.

That will hardly dull the pain for investors worried by a depreciation in the yuan currency and crumbling stock markets since the start of the year.

WHAT A DRAG

For the first 11 months of 2015, property investment accounted for 13 percent of gross domestic product. But the sector’s multiplier effect on other industries, from building materials to white goods and furniture, means its impact on the economy is far greater.

“Looking forward, the property market would continue to drag on the broad economy in 2016, with property investment probably showing weak growth momentum,” said Wang Jun, senior economist at the China Centre for International Economic Exchanges (CCIEE), a Beijing-based think-tank.

Premier Li Keqiang said on Saturday that China’s economy grew by around 7 percent in 2015.

But analysts polled by Reuters have forecast fourth-quarter GDP data set to be released on Tuesday will show growth slipped to 6.9 percent last year, the slowest in a quarter century and down from 7.3 percent in 2014.

The poll was more gloomy about 2016, forecasting growth of just 6.5 percent.

China’s sluggish domestic and external demand, weak investments, factory overcapacity and high property inventories, have raised expectations Beijing will reduce interest rates again, having cut them six times since November 2014.

DRYING REALTORS’ TIERS

For all the pessimism, there have been some glimmers of hope for the economy as financial markets fret growth is slowing down too quickly.

A surge in credit expansion in December was reported on Friday. Nomura analysts wrote in a note that it was probably driven by an increase in fixed-asset investment stemming from infrastructure projects, as Beijing’s fiscal stimulus started to kick in.

And exports in December fell far less than expected, dropping 1.4 percent year-on-year, figures released last week by the world’s largest trading nation showed.

The home price recovery may have a long way to go, but at least it is on the right track.

Shanghai-based property consultancy Centaline noted new home sales hit a seven-year high in December thanks to a swathe of government measures to spur demand, and a series of interest rate cuts.

Realtors are hopeful that buyers unable to afford the cities in the first two tiers will eventually go elsewhere.

“We see more buyers recently are looking at cities right outside the first-tier, where very often prices are just one-tenth of the first-tier cities. So I think the peripheral second and third-tier cities will benefit more this year,” Samuel Wong, chief operating officer at Midland Realty in Shenzhen.