China home prices fall for 11th straight month as suspended construction, mortgage boycott and weak economy hit sales

70-city index of new home prices in July dropped 0.1 per cent from June and 1.7 per cent year over year, according to the National Bureau of Statistics
Lower-tier cities took the brunt of the decline, as first-tier cities saw prices increase for both new and secondary-market homes

China property

David Ren

Published: 4:00pm, 15 Aug, 2022

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Home prices in China dropped for the 11th straight month in July, reflecting the woes of a property market suffering amid a developer debt crunch, an unexpectedly weak economy, a massive surplus of empty homes and a mortgage boycott by homebuyers fed up waiting for unfinished housing projects.

China’s 70-city index of home prices dropped 0.1 per cent compared with June and 1.7 per cent year over year, the National Bureau of Statistics reported on Monday.

New home prices dropped in 40 cities and secondary-market prices fell in 51 cities, an increase of two and three cities, respectively, compared with June, the data showed.

Lower-tier cities suffered more than their more populous counterparts. In fact, first-tier cities – Beijing, Shanghai, Shenzhen and Guangzhou – saw new-home prices increase by 3.1 per cent and secondary-market prices increase by 0.9 per cent year-on-year. In contrast, new and secondary-market prices declined by 0.5 per cent and 2.5 per cent in second-tier cities and by 3.2 per cent and 3.9 per cent in third-tier cities, respectively.

An Evergrande housing complex under construction in Zhumadian, in central China’s Henan province on September 14, 2021. Photo: AFP

“Home transactions declined in many cities, which weakened home prices,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute. More policy relaxation by local governments is necessary to help the market recover, Yan said.

The mortgage boycott movement, which began in early July, spread to 100 cities and 320 projects. This prompted China’s Politburo to issue a statement assuring buyers that the government would help cash-starved developers finish such projects, with local governments responsible for making sure they do so.

“The trouble in the property market is getting worse as suspended construction in some projects makes homebuyers hesitant to purchase new homes,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

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On Monday, the People’s Bank of China (PBOC) surprised many economic experts when it cut a key interest rate, for one-year medium-term lending facility (MLF) loans, by 10 basis points to 2.75 per cent. It also reduced the seven-day reverse repurchase rate from 2.1 per cent to 2 per cent.

“The PBOC rate cut today is one step in the right direction, but a monetary policy by itself may not be enough to deal with the problem,” Zhang said. “The property sector policy and the zero-Covid policy also need to be considered.”

Meanwhile, the national real estate development investment volume declined by 31.1 per cent to 1.115 trillion yuan (US$165 billion) last month compared to June, according to the statistics bureau, marking the lowest investment number since May. The area sold declined by 49.1 per cent to 92.55 million square metres in the same period.

“The investments of developers continue to face pressure,” said Yan. “If more positive policies emerge in August, the home market could recover sooner.”