Chinese property prices fell at their fastest rate in a decade last month, intensifying concerns about the stability of the world’s second-largest economy.
According to the National Bureau of Statistics (NBS), new home prices dropped by 0.7% month-on-month in May, marking the most significant monthly slump since October 2014.
This decline represents the 11th consecutive month of falling property prices in China, with a cumulative drop of 6.4% since their peak three years ago. Despite substantial government stimulus packages, the housing market continues to struggle.
Second-hand home prices also fell by 1% month-on-month, the largest monthly decrease since 2011. Non-new build property prices have plummeted 12.3% from their peak in 2021.
Lynn Song, chief economist for Greater China at ING, warned that the latest figures “ring some alarm bells” as Beijing’s policymakers have been unable to stabilise the housing market. “This data further indicates that the property sector will remain a headwind on growth this year,” he added.
China’s housing market has been in a prolonged downturn since the collapse of property giant Evergrande at the end of 2021, significantly impacting the economy as property development previously accounted for a fifth of China’s GDP.
Despite various government measures to revive the market, including a substantial support package announced in May, challenges persist. The government cut mortgage affordability restrictions and established a 300 billion renminbi (£33bn) re-lending fund to help local governments buy unsold stock and convert it into affordable housing.
However, Duncan Wrigley, chief China economist at Pantheon Macroeconomics, suggested these measures may not be sufficient. “The re-lending facility probably isn’t large enough to support sufficient funding for local governments to buy up enough inventory,” he said. Wrigley also warned that property prices have “yet to bottom out,” noting the 27.9% decline in new home sales last year reflects 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, she cautioned that such measures might not substantially boost activity. “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,” Yang noted in a note to investors.
The persistent decline in property prices and sales underscores the broader challenges facing China’s economy. As Beijing grapples with these issues, further policy interventions may be necessary to prevent a deeper economic slowdown.
