China’s property market records the steepest decline in a decade, heralding significant economic concerns.
- New home prices in China decreased by 0.7% month-on-month in May, the most substantial drop since October 2014.
- This decline marks the 11th consecutive month of falling property prices, totalling a 6.4% drop since their peak three years ago.
- Second-hand home prices also saw a 1% month-on-month decrease, the largest drop since 2011.
- Despite government interventions, experts warn that the property sector remains a considerable challenge to China’s economic growth.
According to the National Bureau of Statistics (NBS), new home prices in China decreased by 0.7% in May, marking the largest monthly decline since October 2014. This drop represents the 11th consecutive month of falling property prices, with a cumulative decline of 6.4% since their peak three years ago. Despite substantial government stimulus packages, the housing market continues to struggle.
Second-hand home prices fell by 1% month-on-month, the largest decrease since 2011. Non-new build property prices have plummeted by 12.3% from their peak in 2021. Lynn Song, chief economist for Greater China at ING, expressed significant concern, stating that the latest figures “ring some alarm bells” as Beijing’s policymakers have been unable to stabilise the housing market. Song added, “This data further indicates that the property sector will remain a headwind on growth this year.”
China’s housing market downturn has been prolonged since the collapse of property giant Evergrande at the end of 2021. This collapse significantly impacted the economy, given that property development previously accounted for a fifth of China’s GDP. Despite various government measures to revive the market, including a significant support package announced in May, the market remains troubled.
The government has attempted to cut mortgage affordability restrictions and established a 300 billion renminbi (£33bn) re-lending fund to assist local governments in converting unsold stock into affordable housing. However, Duncan Wrigley, chief China economist at Pantheon Macroeconomics, suggested these measures may be inadequate. He commented, “The re-lending facility probably isn’t large enough to support sufficient funding for local governments to buy up enough inventory.”
Wrigley further noted that property prices have yet to stabilise, emphasizing the 27.9% decline in new home sales last year as a significant drop in demand. Goldman Sachs economist Yuting Yang anticipates more government support in the coming months, including further reductions in mortgage interest rates. However, Yang cautioned that such measures might not substantially boost activity, warning, “Considering persistent property weakness related to lower-tier cities and private developers, such easing measures may only lead to an ‘L-shaped’ recovery in the sector in coming years.”
The persistent decline in property prices and sales underscores broader economic challenges facing China. As Beijing grapples with these issues, additional policy interventions may be necessary to mitigate a deeper economic slowdown.
The ongoing decline in property prices signals persistent challenges for China’s economy, necessitating potential further government intervention.
