Mainland home prices fall as downturn bites

Fears rise of a real estate slump dragging down the economy as cost of new housing declines in May for the first time in 20 months

PUBLISHED : Thursday, 19 June, 2014, 12:55am
UPDATED : Thursday, 19 June, 2014, 1:51am

Mainland home prices fell last month for the first time in 20 months according to calculations by Reuters based on official data released yesterday, adding to concerns that a deeper-than-expected property downturn could take a severe toll on the wider economy.

Analysts expect mainland developers to cut prices further in the next few months, which could lead to a pickup in property sales in the second half of the year.

Prices of new homes, including state-subsidised units for those on lower incomes, dropped 0.2 per cent in month-on-month terms, the news agency said after the National Bureau of Statistics announced home price data for 70 major cities without providing nationwide changes. The year-on-year gain last month slowed to 5.6 per cent, the least in 13 months.

Stripping out subsidised homes, annual housing price inflation eased in 66 of the 70 cities tracked by the bureau, down from 67 in April. The quickest pace of increase, in Shanghai, slowed to 11.3 per cent from April's 13.6 per cent.

In month-on-month terms, prices declined in half of the cities last month, compared with only eight in April. Hangzhou, the capital of Zhejiang province, suffered the deepest drop with a fall of 1.4 per cent, accelerating from April's 0.7 per cent decline.

Among the 15 cities where prices still rose from those in April, six experienced a slowdown in the pace of growth.

"Home prices fell in some cities because they faced high inventory pressure and an uncertain market outlook," senior statistician Liu Jianwei said. "Homebuyers are taking a wait-and-see attitude, and some developers have had to offer discounts."

The home price data followed recent figures that showed improving yet still soft property sales and construction activity.

Authorities have taken a slew of steps in the past few months to spur economic growth, including efforts to unleash cash previously locked up at the central bank, accelerated disbursements of fiscal expenditure and faster approval of infrastructure projects.

On the local level, a few cities, including Hangzhou and Wuxi in Jiangsu province, have relaxed rules to stimulate housing demand and help ease the cash strains being felt by developers.

In the light of these policy moves, Edison Bian, research head for China property at UOB Kay Hian, said: "We expect gradual home sales recovery in the second half."

His view was echoed by analysts from Bank of America Merrill Lynch who predicted that property sales would bottom out this month and gradually pick up in the second half of the year, with more easing policies helping to boost buying sentiment.

But Wang Tao, chief China economist at UBS, singled out the downturn in the property sector as the biggest risk to the economy in the next two years.

"We see a 15 per cent probability of a sharp property downturn pulling GDP growth down to 5 per cent-plus in 2015," she said in a research note on Tuesday.