Daily Management Review

New Home Prices In China Decline For The First Time This Year, Which Is Bad For The Economy


New Home Prices In China Decline For The First Time This Year, Which Is Bad For The Economy
In July, new home prices in China decreased for the first time this year. This is only the latest in a spate of unfavourable reports that indicate a rapid loss in the general economic momentum and highlight the need for more aggressive policy support to boost activity.
Reuters estimates based on National Bureau of Statistics (NBS) data show that the 0.2% month-over-month decline followed a flat reading for June. Following a flat result in June, prices were down 0.1% from a year earlier.
Home sales and investment in real estate are falling, and the financial situation at large developers is getting worse.
The majority of analysts predict more declines in home prices and sales in the upcoming months, which will present a challenge to policymakers as many economic sectors are under increasing strain due to sluggish demand.
The release of Tuesday's data, which comes after a string of dismal economic indicators over the previous month or two, has prompted calls from analysts of China for the government to implement more forceful support measures to stop the economy's collapse.
Despite an expansion of financial support for developers and incentives for first-time homebuyers and upgraders, China's once-fundamental real estate market is still having trouble.
From 38 cities the previous month, 49 of the 70 cities had a decrease in new home prices month over month in July.

China's senior officials promised to change its property policies at a politburo meeting last month. The housing regulator has also called for actions to support the industry, such as lowering house mortgage rates and down payment requirements for first-time homebuyers and removing mortgage restrictions for those looking to modify their residences.
In an effort to boost morale, some cities, like Zhengzhou, have already loosened a few property restrictions. Reduced down payments are being considered in provincial capitals like Xian and Fuzhou for citizens purchasing second homes.
"We continue to expect more housing easing measures in coming months, including further reduction in down-payment ratios and more relaxation of home purchase restrictions in large cities, among others," economists at Goldman Sachs said in a note to clients.
However, the majority of experts anticipate that the downward trend in home sales and prices will last for some time.
"High frequency data in early August does not suggest any meaningful improvement in the property market," said Wang Tao, Head of Asia Economics and Chief China Economist at UBS Investment Bank.
"Without additional major policy easing and/or fiscal support, property sales and investment may weaken further or stay at the bottom for longer than assumed in our baseline," said Wang.