It's not only stocks that are moving higher in Shanghai and Shenzhen

China Photos/Getty Images

New home prices in China continued to ease in June, although there were vastly divergent performances across the nation.

Overall new home prices fell by 4.9% in the year to June, an improvement on the 5.7% decline seen in May. Over the month prices increased by 0.4%.

While overall prices continued to fall, it was interesting to see the divergent performance between large tier-one cities compared to smaller tier-two and tier-three cities.

New home prices in Shenzhen and Shanghai — large financial hubs that have benefited from huge stock market gains over the past year — recorded annual growth of 15.7% and 0.3% respectively.

Outside of financial centres new home prices in tier-one cities continued to slide, falling 1.1% in Beijing, 2.7% in Guangzhou, 3.1% in Tianjin and 6.9% in Chongqing. Thanks largely to to the red-hot property market in Shenzhen, tier-one prices increased by 3.0% in the 12 months to June.

The chart below, supplied by Westpac, reveals the divergent performance across tier-one cities.

While on balance new home prices in larger cities increased, it was a different story for prices in second and third-tier cities. According to Westpac, prices in tier-two cities fell by 5.4% while those for tier-three cities and below slid by 6.2%.

Clearly the rebound in property prices nationally in being led by large cities, particularly those tied to the performance of the financial sector. Given gains in Shenzhen and Shanghai property prices are clearly being impacted by gains in the Shenzhen and Shanghai stock markets, it offers another insight as to why the government is doing everything in its powers to support the stock market — to reflate the nation’s flagging property market.

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