In June, China’s new home prices fell at their fastest rate in nine years, exacerbating the downturn in property sales and investment. This decline intensifies the need for additional stimulus measures to support the struggling sector, which has yet to find stability.
Home prices dropped by 4.5% year-on-year, marking the steepest fall since June 2015 and surpassing May’s 3.9% decline, according to Reuters’ calculations based on National Bureau of Statistics (NBS) data. On a month-to-month basis, prices fell by 0.7% in both May and June.
The property market has been in a sharp downturn since 2021, leading to multiple developer defaults and numerous stalled construction projects. This has significantly undermined confidence in a sector traditionally viewed by Chinese households as a safe investment. At its peak, the property sector accounted for a quarter of China’s GDP, but it now acts as a major drag on the $18 trillion economy.
Authorities have implemented various support measures, including reducing home-buying costs in major cities and enabling local governments to purchase unsold apartments for conversion into affordable housing. Despite these efforts, the scale of the problem remains substantial.
“Recent supports are a step in the right direction but are still dwarfed by the scale of the problem. Real estate’s tentacles run deep. When the sector hurts, pain is felt economy-wide,” said Harry Murphy Cruise, an economist at Moody’s Analytics.
Official data showed China’s economy grew by 4.7% from April to June, its slowest growth since the first quarter of 2023 and falling short of the 5.1% forecast by analysts in a Reuters poll.
While some measures, such as lifting home purchase restrictions, have boosted market sentiment, they have not reversed the declining prices. Zhang Dawei, an analyst at Centaline Property Agency Ltd., noted that the fundamental supply and demand dynamics in the property sector have shifted, and excessive expectations from policy measures are unwarranted. “It is unlikely that there will be a rise across the board in the sector in the future,” Zhang said.
Property investment dropped by 10.1% in the first half of 2024 compared to the previous year, while home sales by floor area fell by 19%, slightly better than the 20.3% decline recorded in the first five months of the year, according to separate NBS figures.
All eyes are now on the upcoming Communist Party leadership meeting, where key economic issues will be addressed. Policy advisers suggest China might introduce tax and fiscal changes to channel more tax revenues to debt-ridden local governments, alleviating some financial pressures.
“The remainder of 2024 will be defined by officials’ success in arresting the property market’s falls and encouraging domestic spending. Both require significant intervention,” added Moody’s Analytics’ Murphy Cruise.
