China New House Prices Continue To Fall

China New House Prices Continues To Fall

March 18, 2015 – Even as the government pulls out all the stops to revive the property market, new home prices in China have continued their downward spiral.

New home prices fell in 69 of the 70 cities tracked. Both Beijing and Shanghai clocked price declines. In Beijing, prices fell 3.6 per cent on year, while prices in Shanghai fell 4.7 per cent.

Premier Li Keqiang has acknowledged it will not be easy for China to hit its growth target of around 7 per cent this year. But analysts say the property sector could see a slight recovery in the weeks ahead – at least in the top tier cities.

It is in the first tier cities where Chinese homebuyers have returned to the market. Within the second week of March, home sales rose 23 per cent, on month, across 39 cities in China.  First tier cities recorded the biggest jump, at nearly 36 per cent over the same period.

Analysts noted the recent “Two Meetings”  – the annual plenary sessions of the National People’s Congress and National Committee of the Chinese People’s Political Consultative Conference – boosted market confidence after Chinese Premier Li Keqiang promised to speed up urbanisation and build two million new homes in rural areas and old estates this year.

“There are many families who need new homes,” said Sam Xie, Director, CBRE Research. “But a huge volume of property is being sold at prices above what the masses can afford. So that results in the long process of structural overcapacity.”

Lower interest rates and developers stepping up sales could also spur some demand in the coming months. But prices are unlikely to see a fast rebound any time soon, not especially when the stockpile of new homes saw an additional 19 per cent growth by the end of February in 35 major cities, which analysts say could take the market more than a year to absorb.

“Third-tier cities purchasing power is limited and demand there comes in waves, unlike first-tier cities where demand is continuous and right now it’s being suppressed,” said Chen Yanbin, Research Director, China Index Academy. “Restrictions on home purchases still exist in first-tier cities; and one can’t rule out Beijing and Shanghai lifting those measures.”

And then there is the Kaisa overhang. The Shenzhen-based builder missed a coupon payment and authorities have now blocked sales in many of its projects. Analysts say many third- or fourth-tier developers may fall into distress as well this year, as a huge amount of debt comes due.

While the general consensus is China is unlikely to inject huge stimulus measures to prop up the real estate sector, analysts expect more support to come in the form of mortgage discounts or tax breaks on housing transactions. If a recovery does not take root – local governments, which rely heavily on land sale revenues, will be left in a world of pain.