China home sales require more easing to escape ‘current malaise’, analysts say, as report finds prices rose in June but are still well below 2022 levels
- In tier-one cities, where demand is the strongest, sales grew 8.6 per cent month on month while dropping 27 per cent year on year, China Index Academy says
- Current malaise ‘will require cuts by at least 50 basis points to really spark interest’ and a 10-basis point cut is ‘more symbolic than having any tangible effects’: Economist Intelligence Unit
The “current malaise” afflicting home sales in major mainland Chinese cities will require more stimulus from Beijing before a bounce back in the market, analysts said.
Home sales by gross floor area rose 18.5 per cent in June compared to the previous month, but were 44.2 per cent lower than a year ago, in 13 cities tracked by China Index Academy (CIA), one of the country’s largest independent real estate researchers, for a report published on Monday.
In China’s tier-one cities, where demand is the strongest, sales grew 8.6 per cent month on month while dropping 27 per cent year on year. Tier-two cities recorded more drastic changes, rising 25.3 per cent month on month while being down almost by half year on year, according to CIA’s report.
China’s central bank cut the five-year loan prime rate, a reference rate for mortgages, from 4.3 per cent to 4.2 per cent last week, and analysts said they would see how lower mortgage rates might stimulate the market.
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“The current malaise of the market will require cuts by at least 50 basis points to really spark interest in buying homes,” said Xu Tianchen, a China economist at Economist Intelligence Unit. “A 10-basis point one is more symbolic than having any tangible effects.”
The comments come as home sales struggle to bounce back to levels seen last year. Shenzhen, China’s technology hub bordering Hong Kong, continued to see a decline in sales, which fell 6.8 per cent month on month and 24.6 per cent year on year. Inventory also rose 8.58 per cent in Shenzhen, and was the highest among Suzhou, Hangzhou, Wenzhou, Nanjing and other tier-one cities, CIA said.
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The weakness in the home market in tier-one cities is in line with government data. New home prices in these cities rose 1.7 per cent in May, slowing from a 2 per cent year-on-year gain in April, according to data released by the National Bureau of Statistics this month.
Weaker demand for housing also weighed on the land market. CIA said land supply for residential projects dropped by more than 30 per cent year on year in June, with a 40 per cent decline in tier-one cities.
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“Deal volume and amount both dropped” due to declining demand and supply, CIA analysts said in the report. “Developers concentrated their land replenishment in Beijing, Chongqing, Guangzhou, Suzhou and Nanchang.”
Goldman Sachs analysts said last week that they expected further policy easing measures in the coming weeks, such as cuts to down-payment ratios and mortgage rates and the removal of home purchase restrictions in selected large cities. However, they warned that “the magnitude of stimulus should be smaller than in previous easing cycles”.
“It signals more policy easing by local authorities in the second half of the year,” said Yan Yuejin, director of the Shanghai-based E-house China Research and Development Institution.
