In May, house prices in China fell at their fastest rate in nearly 10 years as an oversupply of properties hit the demand despite renewed government efforts to support the sector.
In 70 cities, the price of new housing, excluding subventioned housing, dropped by 0.7% in April. According to figures released by the National Bureau of Statistics on Monday, this was the biggest drop since October 2014. The value of existing homes dropped by 1%. This is the biggest drop since China began using its current method of data collection in 2011.
The government has made the most ambitious effort to date to boost house prices in China. However, the data is disappointing. The People’s Bank of China reduced the down-payments for first-time homebuyers to 15% and for second-homebuyers to 25% in May. also created a 300bn Yuan (£32.8bn), facility for local state-owned firms to purchase homes at affordable prices.
Investors believe that the amount invested by the central bank may not be sufficient. In several cities, local governments have been unable to use allocated funds for the purchase of excess properties by developers. Oversupply has impacted prices and made people less willing to invest.
Prices have also fallen from the previous year. According to Reuters, new house prices fell 3.9%.
Liu Aihua (a spokesperson from the NBS) told journalists at a Monday media briefing that the market for property was going through an adjustment period and it would be some time before policy measures took effect.
Since the housing market fell into freefall, in 2020 due to the pandemic, policymakers have tried to reign in oversupply and support indebted developers.
China’s struggling property market is a reflection of the overall economy. In May, industrial output increased at a slower rate of 5.6% as compared to 6.7% one year ago. Economists expected growth of around 6%.
In May, retail sales grew 3.7%, exceeding analyst expectations. Analysts had predicted a 3% increase.
Ipek Ozkardeskaya is a senior economist at Swissquote Bank. She said that gloomy data on the economy could lead to the Bank of China lowering interest rates in order to boost demand. She added that despite the Chinese government’s efforts to stem the flow of home prices, the latest data shows that they fell at a much faster rate in May. Industrial production also slowed more than expected during that same month.
Bloomberg economists believe that China could see a 10-basis-point cut this week to help stabilize the economy.
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