Chinese property prices fell last month at their fastest rate in a decade, raising concerns about the stability of the world's second-largest economy.
According to the National Bureau of Statistics, new home prices fell by 0.7% month-on-month in May, the largest monthly decline since October 2014.
The decline marks the 11th consecutive month of falling property prices in China, with a cumulative decline of 6.4% since their peak three years ago. Despite large government stimulus packages, the housing market continues to struggle.
Used home prices also fell 1% month-on-month, the largest monthly decline since 2011. Non-new property prices fell 12.3% from their peak in 2021.
Lin Song, chief economist for Greater China at ING, warned that the latest figures “ring some alarm bells” because policymakers in Beijing have been unable to stabilize the housing market. “This data also indicates that the real estate sector will remain a drag on growth this year,” he added.
China's housing market has been experiencing a long-term stagnation since the collapse of real estate giant Evergrande at the end of 2021, which has greatly affected the economy as property development previously represented a fifth of China's GDP.
Despite various government measures to revive the market, including a large support package announced in May, challenges remain. The government has lowered restrictions on mortgage affordability and set up a RMB300bn (£33bn) re-lending fund to help local governments buy up unsold equity and turn it into affordable housing.
However, Duncan Wrigley, chief China economist at Pantheon Macroeconomics, noted that these measures may not be enough. “The re-lending facilities may not be large enough to support sufficient financing for local governments to purchase enough inventory,” he said. Wrigley also warned that real estate prices “haven't bottomed out yet,” noting that the 27.9% drop in new home sales last year reflects a significant decline in demand.
Goldman Sachs economist Yuting Yang expects more government support in the coming months, including further cuts in mortgage interest rates. But she cautioned that such measures may not significantly boost activity. “Given the ongoing weakness in the real estate sector related to lower-tier cities and private developers, these mitigation measures may only lead to an L-shaped recovery in the sector in the coming years,” Yang noted in a note to investors.
The continuing decline in property prices and sales highlights the broader challenges facing the Chinese economy. As Beijing grapples with these issues, further policy interventions may be necessary to prevent a deeper economic slowdown.
