China's new home prices fell by 0.7% in May, marking the steepest decline since October 2014, despite government efforts to stabilise the property sector. Prices have dropped for 11 consecutive months, with a 3.9% annual decrease. Nearly all of the 70 surveyed cities saw declines. Analysts wonder about the effectiveness of measures to manage oversupply and support developers. The market is expected to diverge, with large cities stabilising and smaller cities continuing to decline due to oversupply and population outflows.
China's new home prices fell in May at the fastest pace in more than nine years, as reported by official data earlier this month. Despite government efforts to manage oversupply and support debt-ridden developers, the property sector continued to struggle. Prices dropped 0.7% in May from the previous month, marking the 11th consecutive month-on-month decline and the steepest fall since October 2014, according to Reuters calculations based on data from the National Bureau of Statistics (NBS).
On an annual basis, new home prices decreased by 3.9% compared to the same period last year, worsening from a 3.19% decline in April. China's property sector, once a major driver of the country's economic growth, has been mired in crises since mid-2021. These crises include developers defaulting on debt and halting construction on pre-sold housing projects.
To address the crisis, authorities have implemented measures such as facilitating 300 billion yuan (USD 41.35 billion) to clear massive housing inventory, reducing down payments, and easing mortgage rules. However, analysts remain sceptical that these measures will significantly absorb the housing surplus. They also suggest that lifting home purchase restrictions in major cities might further reduce buying sentiment in smaller cities.
In May, nearly all of the 70 cities surveyed by the NBS experienced declines in new home prices. Xu Tianchen, senior economist at the Economist Intelligence Unit, noted that the latest policies have boosted the second-hand home market in major cities, but the liquidity problem of real estate enterprises has not yet been eased, and the confidence crisis in the new-home market remains unresolved.
Additional data released this month indicated a 10.1% drop in property investment for the first five months of the year compared to the previous year, following a 9.8% decline in January-April. Home sales also fell at a faster pace in January-May.
The property market in China is expected to diverge, according to Nie Wen, an economist at Shanghai Hwabao Trust. In large cities, new home sales are being driven by those who have managed to renovate and sell their existing homes. Meanwhile, real estate in smaller cities is predicted to continue declining due to housing oversupply and population outflows.
Policymakers are anticipated to support local governments and state-owned enterprises by offering discounted loans to buy unsold homes for low-cost housing. Additionally, they are expected to cut interest rates and fees to help homeowners improve their properties, Nie said.
In conclusion, the Chinese property market remains in a challenging situation, with significant declines in home prices and investment. Despite governmental measures aimed at stabilising the sector, issues such as liquidity problems and a lack of buyer confidence persist. The market is likely to see a divergence, with larger cities potentially stabilising while smaller cities continue to face difficulties. Policymakers are expected to continue their efforts to support the sector, but the effectiveness of these measures remains uncertain.
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