China’s home prices decline in July as property crisis worsens
- Prices of new homes in China fell 0.2 per cent month on month in July, after staying unchanged in June
- Sluggish home sales and Country Garden’s liquidity crisis could spill over to other industries and lead to contagion risks, Natixis senior economist Gary Ng says
Of the 70 cities tracked by the National Bureau of Statistics (NBS), only 20 cities registered an increase in new home prices last month, compared with 31 in June, while prices of second-hand homes rose in only six cities. In June, prices were flat.
“At present, the real estate market is in an adjustment stage, and some real estate companies have encountered certain difficulties in their operations,” said NBS spokesman Fu Linghui. “In particular, the debt risks of some leading real estate companies have been exposed, which has affected market expectations.”
Analysts at JPMorgan said that China’s residential property market could see a sharper-than-expected contraction this year. The US investment bank expects the value of new home sales to contract 10 per cent this year, compared with a previous estimate for a 4 per cent decline, Reuters reported on Tuesday.
Country Garden’s failure to make coupon payments on two US dollar bonds raises concerns about the company’s financial stability, T Rowe Price said in a note on Wednesday.
China’s property sector faces reckoning amid Country Garden, Sino-Ocean woes
“In the event of a default by Country Garden, other private property developers may also experience collateral damage, while government-related developers are expected to be relatively unaffected,” said Sheldon Chan, portfolio manager for Asia credit bond strategy.
Gary Ng, a senior economist at Natixis, said the problems in China’s economy are structural. “The sluggish home sales and Country Garden’s liquidity distress could spill over to other industries and lead to contagion risks,” he said.
Among major cities, new home prices in Shenzhen and Guangzhou fell by 0.6 per cent and 0.2 per cent month on month, respectively, while they rose by 0.4 per cent and 0.2 per cent in Beijing and Shanghai, respectively.
The decline was worse in the secondary market, with prices in large and medium-sized cities easing by between 1.4 per cent and 3.5 per cent, NBS data showed.
“The decline in sequential growth of house prices was broad-based across city tiers, especially for low-tier cities,” US investment bank Goldman Sachs said in a note, which estimated that new home prices declined by 2.5 per cent in July, widening from 2.2 per cent in June.
“Despite more local housing easing measures in recent months, we believe the property markets in lower-tier cities still face strong headwinds from weaker growth fundamentals than top-tier cities, including net population outflows and potential oversupply problems.”
10:57
Boom, bust and borrow: Has China’s housing market tanked?
China’s central bank has pledged to guide commercial banks to lower mortgage rates for existing borrowers as well as reduce the down payments on properties. The optimism generated by last month’s Politburo meeting, where the statement “housing is for living, not speculation” was removed, has fizzled out as there has been no significant easing or shift in the top leadership’s stance since.
NBS’s Fu said the problems are likely to be temporary. “As the market mechanism gradually plays a role and the real estate market policies are optimised, the risks of real estate companies are expected to be resolved.”
Goldman expects more housing easing measures in coming months, including further reduction in down payment ratios and more relaxation of home purchase restrictions in large cities.
“However, considering persistent property weakness related to lower-tier cities and private developers, such easing measures may only lead to an ‘L-shaped’ recovery in the sector in coming years.”
T Rowe Price was less forgiving in its assessment.
“Looking ahead, the Chinese property sector is anticipated to experience a multi-year structural decline as housing demand shrinks due to factors such as population decline, slower urbanisation, and changes in family formation,” said T Rowe’s Chan.
