Sharp Plunge in China’s New Home Prices

Market’s steep downturn leads to more developers leaving unfinished projects

China's new home prices in June fell at the fastest clip in nine years while property sales and investment slumped, increasing pressure on policymakers for more stimulus to prop up the battered sector as it struggles to find a bottom.

New home prices slid 4.5% from a year earlier, hitting the lowest since June 2015, deeper than a 3.9% slide in May, according to calculations based on National Bureau of Statistics (NBS) data. Prices were down 0.7% month-on-month in June after a 0.7% dip in May.

Since 2021, the property market's steep downturn has led to a series of developers defaulting, leaving numerous construction sites idle. This has eroded confidence in the sector, traditionally favoured by Chinese households as a safe haven for their savings. The property sector which at its peak accounted for a quarter of GDP, remains a major drag on the $18 trillion economy.

Recent supports are a step in the right direction but are still dwarfed by the scale of the problem. Real estate's tentacles run deep. When the sector hurts, pain is felt economy-wide.

Harry Murphy Cruise, Economist at Moody's Analytics

Authorities have rolled out a flurry of support measures, including cutting home buying costs in major cities and allowing local governments to buy some unsold apartments and turn them into affordable housing. "Recent supports are a step in the right direction but are still dwarfed by the scale of the problem. Real estate's tentacles run deep. When the sector hurts, pain is felt economy-wide," said Harry Murphy Cruise, Economist at Moody's Analytics, in a research note.

While some measures such as lifting of home purchase restrictions have helped market sentiment, more stimulus may not bolster falling prices. "The structure of supply and demand in the property sector has been fundamentally reversed. (The market) does not need to have excessively high expectations of the effects of the policies," said Zhang Dawei, analyst at Centaline Property Agency Ltd.

"It is unlikely that there will be a rise across the board in the sector in the future," Zhang said. Property investment fell 10.1% in the first half of 2024 from a year earlier, and home sales by floor area fell 19.0%, compared with a 20.3% slump in the first five months of the year, separate NBS figures showed. Markets will closely scrutinise directives from the Communist Party leadership meeting where key economic issues will be discussed.

Policy advisers believe China could unveil tax and fiscal changes that would funnel more tax revenues to debt-laden local governments to help ease pressure on their finances. "The remainder of 2024 will be defined by officials' success in arresting the property market's falls and encouraging domestic spending. Both require significant intervention," said Moody's Analytics Murphy Cruise.