Across 100 cities in China, prices of second-hand homes fell year-on-year from January to August, with August marking the 28th consecutive month of price decline. - AFP
BEIJING: Three months since China rolled out sweeping measures to rescue its beleaguered property market, the tide has yet to turn, with housing prices continuing to fall.
Across 100 cities in China, prices of second-hand homes fell year on year from January to August, with August marking the 28th consecutive month of price decline, according to data from Beijing-based real estate research institute China Index Academy released on Sept 1.
In August alone, the average price of second-hand homes dropped by 0.71 per cent compared with July; it fell by 6.89 per cent compared with a year before.
August’s new home prices nudged up by a sluggish 0.11 per cent from July, slowing from July’s 0.13 per cent rise.
On May 17, Beijing announced a suite of measures, including reducing down payments, lowering mortgage rates and easing purchase requirements, in a bid to reverse the property slump, which is well into its third year now.
Economist Tommy Xie, who heads the Greater China research at OCBC Bank, said that while the measures may soften the slope of the property downturn, it is not enough to reverse the direction of the market.
“Current policies are unlikely to reboot demand immediately as buyer sentiment remains weak due to low income expectations and people cutting down on spending as their wealth decreases,” said Mr Xie, noting that the property sector is still undergoing a rebalancing phase between supply and demand.
May’s rescue measures included a push for local governments and state-owned enterprises to buy unsold homes and turn them into affordable housing. China had around 382 million sq m of unsold new homes in July, according to official data.
But the take-up has been slow, with only 24.7 billion yuan (S$4.54 billion) under a 500 billion yuan financing scheme being lent out, leading the People’s Bank of China to say in August that it will accelerate the programme.
Xie said the low utilisation rate is likely due to local governments being constrained in their ability to undertake large-scale acquisitions of unsold houses as most are already heavily indebted.
The local authorities may also be waiting for further clarity on their roles and responsibilities before committing to such extensive actions, he added.
China’s property market has been in a slump since 2021, marked by declining home prices and plummeting home sales after two decades of rapid growth and price appreciation.
In 2021, a regulatory crackdown on high leverage among property developers triggered a liquidity crisis as Evergrande Group became the first to default.
The property market crisis has greatly affected household wealth, consumption and the job market.
While Beijing has in recent years been trying to reduce China’s reliance on real estate, the property sector accounts for around 70 per cent of household wealth and generates 24 per cent of the country’s gross domestic product.
A key factor in the prolonged slump is a lack of confidence among Chinese home buyers.
Dr Guo Xiangyu, Tsinghua University PBC School of Finance’s director of research at the Research Centre for Real Estate Finance, noted that it is the first major downturn in China’s property market since private home ownership was introduced in the 1990s.
“People who bought property had expected prices to keep rising. For the first time in their lives, home prices are dropping, which leads to the low market confidence,” he said.
But the property market is cyclical, and what comes down will eventually go back up, he added.
Citing the US subprime mortgage crisis in 2008, Dr Guo said: “The US housing market rebounded in 2012; that is about four years. China is reaching its fourth year soon.”
According to investment bank Nomura’s Chinese consumer confidence index released on Sept 4, consumer confidence in China is approaching its historical low, with the property downturn identified as the root cause.
Prices of existing homes, based on a sample of 25 large cities, are down nearly 30 per cent from 2021 levels, according to Nomura’s analysis of proprietary data by Chinese property think-tank Beike Research Institute.
“The persistent decline in housing prices is severely dampening household balance sheets,” said Nomura, stating that bolder and more effective stimulus measures are needed to address problems in the property market.
Tsinghua’s Dr Guo noted that if nationwide property values drop by more than 30 per cent, properties might be worth less than their mortgages. This could create the risk of borrowers defaulting on their mortgages, he said.
First-time home buyers typically made an upfront down payment of 30 per cent, until it was lowered in May.
In recent weeks, Beijing has continued to signal its determination to stabilise the property sector.
On Aug 28, the Ministry of Housing and Urban-Rural Development signalled a shift in approach in China’s housing sales system, saying it will “strongly and orderly” advance the sale of fully completed homes.
This is a significant departure from the prevailing practice, where developers sell properties before construction even starts, which in the last three years had eroded buyer trust as developers defaulted and projects were delayed.
Now, eyes are on “Golden September and Silver October” – the autumn months when real estate activities usually pick up from the holiday months of July and August – when some localities typically push out sales promotions.
Amid current falling home prices, there appears to be a glimmer of hope for some first-time buyers who have immediate housing needs and are more price-sensitive.
First-timer Li Qiqi, 24, who is expecting his first child in October, bought a 90 sq m second-hand apartment in Changchun, the capital of Jilin province in north-east China, about six months ago.
While Li, a property agent, declined to reveal the price he paid, he said it was almost 100,000 yuan lower than what it had been one to two years ago.
“I got this unit for a reasonable price, although I am not sure if I will be able to sell it in the future. But it is okay, as we intend to live in it for at least the next 10 years, so we will see when that happens,” he said. - The Straits Times/ANN
