China’s rescue plan for property market appears insufficient to reverse price decline

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.

The prices of second-hand homes are generally regarded as a more accurate reflection of market forces, whereas prices of new homes fluctuate less as developers are typically guided by a price range set by local governments, a practice that is gradually being eased.

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, they are 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.

Mr 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.