China property stocks surged amid warnings of weak reality, high expectations

China’s housing prices fell in October due primarily to falling prices in less developed, so-called Tier-3 cities, according to Goldman Sachs analysis of official data.

China's real estate sector isn't poised for a quick recovery despite a rally this month in stocks of major property developers

The main problem of falling home sales and prices is not fixed by Beijing.

The central bank and banking regulators issued measures that encouraged banks to help the real estate industry. Other support measures were included in this month.

Country Garden, the biggest Chinese developer by sales, has more than doubled in November, and Longfor, the second largest Chinese developer by sales, has more than doubled. Some of this month's gains have already been surrendered by the stocks.

About 40% of China's steel consumption is used in property construction, according to Morgan Stanley.

The situation is one of strong expectations, but weak reality, and market prices have deviated from the basics, according to an analyst.

The peak construction period of March and April is when apartments can be delivered.

This really is a temporary relief in terms of the developers having to meet less debt repayment needs in the near future...

The new measures, widely reported in China but not officially released, call for treating developers the same if they are state-owned or not. CNBC requested comment from the two regulators.

"This is a temporary relief in terms of the developers having to meet less debt repayment needs in the near future, rather than a fundamental turn around."

He said that the underlying home sales market is still needed to improve.

Many people refused to pay their mortgage when construction was delayed. A major source of cash flow for developers is the sale of homes in China before they are finished.

China's property market can recover, according to analysts.

A recovery could happen in the second half of next year according to Lawrence Lu of S&P Global Ratings.

He said that if the policy is implemented quickly, it will stop the downward spiral to the developers.

The National Bureau of Statistics reported last week that residential housing sales fell by 28.2% in the first 10 months of the year. S&P Global Ratings said in July that it expects a 30% plunge in sales over the next four years.

There is a lack of appetite for buying homes due to a slowing economy, uncertainty about Covid controls and worries about future income.

Falling prices are adding to those concerns.

The analysis shows that housing prices in 70 cities fell in October from a year ago.

The analysts said that despite more local housing easing measures in recent months, the property markets in lower-tier cities still face strong headwinds from weaker growth fundamentals than large cities.

According to the report, housing prices in tier-1 cities rose by 3.1% in October from September, while tier 3 cities fell by 3.9%.

Two years ago, Beijing began to crack down on developers using debt for growth. The debt crisis that rattled investor confidence was caused by Evergrande, the country's most indebted developer.

There are concerns about other real estate companies' ability to repay their debt.

The shares of Evergrande, Kaisa and Shimao are not currently traded.

The real estate market's struggles have contributed to the decline in China's growth this year.

According to analyst estimates, the property sector makes up 25% of China's GDP.

The real estate sector will become less of a drag on the economy in the years to come, according to an economist.

He said it was too early to tell if the measures would be enough to save the real estate sector. If the real estate downturn doesn't turn around in the coming months, it's more likely that more measures will be rolled out.

China's real estate industry is undergoing a state directed transformation to a smaller part of the economy and less reliant on selling apartments before they are completed.

The property market has shrunk by roughly one-third compared to last year, and will likely remain the same size next year.

He said that state-owned developers have done better during the downturn.

The sales of state-owned developers fell by 25% in the first three quarters of the year, compared to the sales decline of developers not owned by the state.

Beijing's stance is still firm despite recent policy moves.

The official announcements this month from the National Bureau of Statistics or the People's Bank of China made it clear that houses are for living in, not speculation.