China's new home prices fell at their fastest pace in nearly a decade in July highlighting the persistent challenges faced by the property sector despite a series of supportive policies from Beijing. The ongoing slump in the housing market has cast a shadow over the world's second-largest economy, with experts now questioning the feasibility of China's 5 per cent GDP growth target for 2024, even as other economic indicators show signs of stabilising.
According to data from the National Bureau of Statistics (NBS), new home prices decreased by 4.9 per cent year-on-year in July—the steepest decline since June 2015 and a slight increase from the 4.5 per cent fall observed in June. Reuters' initial report suggested a 5.0 per cent drop, which was attributed to automated rounding off of the figures.
Analysts at ING have expressed concern over the deteriorating situation, stating, "It is increasingly looking like the property market will continue to need more policy support to establish a bottom."
In an effort to revitalize the sector, which once contributed to a quarter of the economy, Beijing has implemented measures such as lowering mortgage rates and reducing the costs associated with home buying. Despite these efforts, the impact of external economic downturns has dampened the effectiveness of these policies, according to Song Hongwei, Research Director at the Tongce Research Institute.
On a month-to-month basis, new home prices declined by 0.7 per cent in July, marking the 13th consecutive month of decreases and matching the rate of decline seen in June. Among the 70 cities surveyed by the NBS, only Shanghai and Xi’an reported month-on-month increases in new home prices, with Shanghai being the sole city to also see a rise in resale home prices.
The real estate market downturn has led some developers to adopt unconventional strategies to attract buyers and reduce the number of unsold homes. For instance, China Merchants Shekou Industrial Zone Holdings' Nanjing branch is offering a unique promotion: apartment buyers receive a gift package valued at 200,000 yuan ($27,950), which includes 100 hours of flight time towards a pilot’s license and a 5 per cent ownership stake in a jet. Alternatively, buyers can opt for the 200,000 yuan in cash.
In late July, China's top decision-making body, the Politburo, reaffirmed its commitment to completing unfinished projects and converting unsold apartments into affordable housing.
Further data released indicated that property sales by floor area from January to July dropped by 18.6 per cent compared to the same period last year, slightly better than the 19.0 per cent decline recorded from January to June.
A recent quarterly survey by China’s central bank revealed that a record-high 23.2 per cent of residents believe house prices will continue to fall in the third quarter, the highest percentage since the data was first collected in 2013.
Experts are calling for more targeted and robust policy interventions to stabilize the market. In a research note, Goldman Sachs stated, "We continue to expect more housing easing measures in the coming months, including more relaxation of home purchase restrictions in top-tier cities and further reductions in mortgage interest rates." However, the firm cautioned that, given the ongoing challenges faced by lower-tier cities and private developers, such measures are likely to result in an 'L-shaped' recovery for the sector in the coming years.
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