Depression in China’s property market far from over

Article tags EconomyAsiaGlobalCountry AnalysisEIU Store

In October new‑home prices rose in 13 out of 70 surveyed cities in month-on-month terms, according to data released by the National Bureau of Statistics on October 20th. This compares with 27 in September and 46 in August.

China’s residential property market needs more time to adjust to the shock caused by a debt crisis involving a major developer, Evergrande. Confidence levels in the sector are severely depressed and will remain so in the next two quarters, despite the government loosening some of its curbs on the sector. Other property developers are facing high levels of financial stress amid borrowing curbs introduced by the central bank. Investors and banks are also more reluctant to provide funding to developers owing to concerns about their ability and willingness to service debt. The situation has fuelled pessimism among potential homebuyers.

The government’s overarching policy goal is still to reduce the property sector bubble. However, it is also conscious that its regulation of the industry carries risks to the financial sector and social stability, and so has asked some banks to resume lending to qualified developers and speed up mortgage approvals. The mild relaxation of controls will help to absorb existing property demand, such as from homebuyers who have already made down payments on properties but are waiting for their mortgage to be approved. However, it is not enough to generate new demand for housing.

A total of 52 cities saw prices fall, worsening from 36 in September, with 21 reporting a drop of 0.5% or more. The declines were most pronounced in third‑tier cities, where prices fell by an average of 0.3%, compared with 0.2% in second‑tier cities. Average prices were unchanged in the four first‑tier cities, where demand conditions are more robust. The situation was worse in the second‑hand (existing homes) market. Prices fell in a record 64 cities, with 22 seeing declines of 0.5% or more.

Property prices are a lagging indicator and do not capture the current distress in the market. New‑home sales and property investment are leading indicators, which both saw declines in October. This points to a further depression of the property market in the coming months. 

Impact on the forecast

The property market will remain depressed over the next two quarters, despite a mild easing in government curbs. The authorities will still introduce new property tax pilots in early 2022, although they will be cautious about the policy design.

Wed, 17th Nov 2021 Article tags EconomyAsiaGlobalCountry AnalysisEIU Store