China’s housing market is facing significant challenges as new home prices plummeted at the fastest rate in over nine years this past August, according to the latest data released by the National Bureau of Statistics (NBS). The decline reached 5.3% compared to the same period last year, a notable drop from the previous month’s 4.9% decrease. This continuous downward trend marks the fourteenth month of falling prices, with a monthly reduction of 0.7%, fully matching the decline recorded in July.
The property market is wrestling with critical issues including heavily indebted developers and a prevalent lack of buyer confidence, which puts pressure on the financial system and jeopardizes the nation’s goal of achieving a 5% economic growth rate for 2024. A recent Reuters poll forecasts an 8.5% drop in home prices for next year, predicting a further 3.9% decline into 2025 as the sector struggles to find a stable path forward.
Experts highlight that the property market is in a phase of gradual bottoming out, with demand and confidence likely to take time to recover. Zhang Dawei, chief analyst at Centaline, outlined that the market is eagerly anticipating stronger policy interventions from the government to stimulate recovery.
In-depth analysis indicates that property investment has seen a hefty 10.2% decrease, with home sales crashing by 18% year-on-year for the first eight months of the year, as confirmed by additional official statistics released simultaneously. Policymakers in China have made concerted efforts to support the housing market, including lowering mortgage rates and reducing home buying costs, which have started to stimulate some demand in major urban centers.
However, smaller cities, which lack the same purchase restrictions and are burdened by high levels of unsold properties, remain particularly vulnerable. This presents a significant balancing act for authorities trying to regulate supply and demand across different regions. Among the 70 cities analyzed by the NBS, only two reported increases in home prices, both monthly and annually in August.
Analysts at Nomura foresee a worsening growth slowdown in the second half of the year, suggesting that the Chinese government might need to step in more directly by providing funding to delay projects that have already been sold. Furthermore, ongoing speculation suggests that interest rates on over $5 trillion in outstanding mortgages could see reductions sometime soon.
Economists at ANZ have speculated that a decrease in the five-year Loan Prime Rate is likely this September, along with cuts to the medium-term lending facility (MLF) and adjustments to the reserve requirement ratio (RRR). These measures could further aid in stimulating an ailing property sector.
As the Chinese economy navigates through these turbulent waters, the potential policy shifts aimed at reviving the housing market will be critical in determining not just the health of the property sector, but also the broader economic landscape for the coming years.