China's real estate market continues to face challenges as new home prices decreased for the third consecutive month in September. Data from the National Bureau of Statistics shows a 0.2% monthly drop, and there is still a 0.1% decrease year-on-year. Property sales and investment are also declining, despite government policy stimulus measures aimed at boosting the property sector. Stabilization of buyer sentiment is being observed, but the complete recovery of the property market hinges on the fourth quarter's performance. Lower-tier cities face more significant challenges due to weaker economic fundamentals and oversupply issues, highlighting the need for effective debt resolution for private developers.
The recent data on China's real estate market reveals a challenging landscape for the nation's property sector. Despite ongoing efforts to revive the beleaguered market, new home prices in China have declined for the third consecutive month in September. This comes as a surprise, particularly during the traditionally high-demand season for home purchases.
The data, calculated by Reuters using information from the National Bureau of Statistics (NBS), indicates a 0.2% monthly drop in new home prices, a slight improvement from the 0.3% decrease in August. However, on a year-on-year basis, there is still a 0.1% decrease, consistent with the trend observed in August. This news is released alongside concerning figures on property sales and investment, both of which continue to experience double-digit declines. These trends suggest that, despite promising headline gross domestic product data, China's property sector remains mired in challenges, and the economy is not entirely out of the woods.
In response, China has expedited its policy stimulus measures in recent weeks. This includes relaxing borrowing restrictions and easing home-purchasing limitations in select cities. The objective is to boost the sentiment of potential homebuyers and rejuvenate the property sector. Analysts have detected early signs of stabilization in buyer sentiment, indicating that these actions may be starting to have a positive impact.
However, the complete recovery of the property market appears to hinge on the fourth quarter's performance. Ma Hong, a senior analyst at the Zhixin Investment Research Institute, suggests that there's a possibility of new home prices experiencing a slight decline for the entire year of 2023. Traditionally, September and October represent the peak months for new home sales in China, characterized by developers offering promotions and releasing new properties.
A closer look at the data reveals that of the 70 cities included, 54 reported a decrease in prices last month, a slight increase from the 52 cities that reported declines in August. In tier-three cities, where housing affordability is often more accessible, new home prices experienced a 0.3% month-on-month decline, following a 0.4% drop in August.
These challenges are particularly pronounced in lower-tier cities, where weaker economic fundamentals, net population outflows, and potential oversupply problems persist. China's property sector, once a cornerstone of economic growth, has been grappling with regulatory pressures since 2020 aimed at curbing excessive debt. These measures have led to tightened liquidity and heightened default risks for property developers.
On the brighter side, some major cities like Beijing and Shanghai have witnessed an uptick in new home prices due to supportive policies, but demand remains tepid in smaller cities grappling with excess housing supply. The property sector nationwide continues to face a significant downturn, as evidenced by the continued decline in new home prices in cities like Shenzhen and Guangzhou.
The heart of the issue in regions like Guangdong lies in the financial challenges faced by private developers. Addressing their debt issues becomes paramount, according to Ma, who suggests that additional support policies might not be the immediate solution. The need of the hour is effective management and resolution of the debts incurred by these private developers.
Investors are watching closely, especially China's largest private developer, Country Garden, headquartered in Guangdong, for indications of the sector's future. The recent expiration of the grace period for a $15 million coupon payment on one of the company's bonds has added to the uncertainty surrounding both the company and the real estate sector.
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