News of the fall in prices coincided with reports that China's central bank had injected 500 billion yuan ($81 billion) into big state-owned banks to keep cash flowing in the system and bring down borrowing costs, adding to speculation over whether Beijing was stepping up its efforts to stimulate activity as the economy loses momentum.
Average new home prices across China fell 1.1 percent last month, a faster decline than the 0.9 percent drop seen in July, according to the Reuters weighted home price index, which was calculated from data issued by the National Bureau of Statistics on Thursday.
The string of monthly price declines is now close to wiping out gains seen over the last year, which could further weaken buying interest and dampen consumer confidence. Compared to a year ago, new home prices were up just 0.5 percent in August, easing from the previous month's 2.5 percent gain and the slowest annual growth in 20 months.
The worst performance was in the eastern city of Hangzhou, where prices sagged 2 percent in August from July and dropped 5.4 percent from a year ago.
"Home prices are likely to drop further in coming months as developers need to offer deeper price cuts to attract home buyers to enter the market," said Lin Bo, vice-head of research at China Real Estate Information Corp, a property data provider, in Shanghai.
"Compared to a year ago, we expect prices to go negative by the end of this year or earlier next year."
In the last downturn in early 2012, China started to see year-on-year house price falls after five consecutive monthly drops. Some economists believe the current slump could last much longer given far higher inventories of unsold homes.
Developers will face intensive competition in September and October with more new developments launched in the traditional peak season, analysts said.
Moody's Investors Service said on Wednesday that developers' profit margins are expected to continue to be weak, as China's property prices are likely to remain under pressure for the rest of the year with strong supply from new projects in second-half 2014.
Real estate, which directly impacts around 40 other business sectors in China, was seen as a heavy brake on economic activity in official data out last weekend showing factory output growing at its slackest pace in six years in August.
The slowdown in the housing market coincides with other August data which show China's economic growth appearing to hit a soft patch after a bounce in June.
PRICES DROP IN MOST CITIES
The NBS data showed new home prices fell in 68 of the 70 major cites it monitors, up from 64 cities in July.
"Home prices dropped on a monthly basis in most cities in August, but some of them saw easing price falls," said Liu Jianwei, a senior statistician at the National Bureau of Statistics (NBS), said in a statement accompanying the data.
Prices slipped 0.9 percent from July in Beijing, easing from a month-on-month drop of 1.0 percent in July, while Shanghai prices fell 1.1 percent from July, the fourth month-on-month fall in a row - though not as fast as a decline of 1.2 percent in July.
Price declines deepened on a monthly basis in smaller cities, including the eastern city of Jinhua, where home prices fell 1.7 percent, accelerating from a drop of 0.8 percent in July.
Official transaction data showed sale numbers picking up slightly in August from July. Industry observers believe the downturn could persist in coming months because of high inventories and pessimistic market sentiment.
NBS data last weekend showed the floor area of property sold rose 5 percent in August from July, though the floor area sold was still 12.4 percent down from a year ago.
After a strong performance in 2013, China's real estate market softened as sales slowed and banks have become increasingly cautious about lending to developers and home-buyers.
In the face of sluggish sales, China Vanke (000002.SZ)2022.HK, the country's largest residential developer, has teamed up with Taobao, the Alibaba-owned online shopping site, to offer discounts of as much as 2 million yuan ($325,000) to customers who buy property on the eBay-like site.
More than 30 local governments, which earn a large part of their revenues from selling state land, have acted to support the troubled property sector by easing restrictions on home purchases in recent months.
Sources told Reuters earlier this month that authorities are relaxing financing rules, allowing approved listed property firms to sell medium-term notes in the interbank market.
(Reporting By Xiaoyi Shao and Koh Gui Qing; Editing by Eric Meijer)
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