Local governments sold much less land for real estate development last year as the property sector hit a rough patch, casting a shadow over their financial condition.

New home construction used 151,000 hectares of land in 2014, plummeting 25.5 percent from a year earlier, the Ministry of Land and Resources said in a report.

Earlier data released by the ministry showed land sales revenue still grew by 3.2 percent, but it was a sharp decline from the 44.6 percent rise in revenues generated the previous year during a boom in the property market.

The growth in revenue for a shrinking land area suggests land prices nationwide increased last year. Official data did not show prices in specific areas, but private researcher China Index Academy found that land prices in first-tier cities soared 41 percent, while second-tier cities registered a slump of 4 percent and in third-tier cities it fell 2 percent.

The contraction in land sales is particularly painful for governments in smaller cities and hinterland regions where governments found it increasingly difficult to sell land to developers who fear oversupply in those markets.

"Local governments in small cities have sold massive volumes of land. They prefer building a new city instead of redeveloping old urban areas, which is much more costly," said Huang Yu, vice-president of the academy.

Compared with the same period last year, new home prices in January declined in 64 cities among the 70 cities surveyed by the National Bureau of Statistics, which translates into a 5.1 percent year-on-year decline, according to Bloomberg calculations.

The stall in housing prices is strengthening the case for monetary easing, according to analysts. They said policymakers will soon roll out a slew of stimulus policies - not necessarily targeting the property market exclusively but in effect providing a boost to the market, which include an interest rate cut and lower bank reserve ratio requirements.

Tom Orlik, a Bloomberg analyst, said falling land sales, new construction and prices reflect the limited impact of policy changes on the cost of credit. Average rates for mortgage loans were 6.25 percent at the end of 2014, only fractionally down from 6.54 percent at the beginning of the year.

"That reinforces our view that a second rate cut is on the way," he said.

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