Continuing a decline that started in May, China’s new home prices fell an average of 0.78 percent in October, after looser credit rules and policy reversals helped to avoid a freefall in the country’s real estate market. The figures published today by China’s National Bureau of Statistics include all new residential buildings, including subsidised housing.
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While housing prices continued to fall, the rate of decline was somewhat less than what the country suffered in September when prices slid 0.97 percent. In less encouraging news, however, October was the first month this year when prices fell in all 70 of the cities included in the Bureau’s survey.
The mixed results come despite China’s expansion of the pool of customers eligible for mortgage financing and reintroduction of mortgage discounts for preferred buyers at the end of September. October is also traditionally one of the busiest months for home sales in China.
The mild reversal in the rate of housing price decline indicate that China’s current real estate slump may be a prolonged one, particularly as the government remains reluctant to turn loose large scale monetary easing, or other broad-based stimulii, out of fear of increasing debt risks.
October Improvement Continues September Trend
While prices continued to drop in October, it was the second month in a row of decreasing rates of decline, after September’s prices fell 0.97 percent compared to August’s drop off of 1.1 percent. The flattening out of the market decline means that China’s changes in policy seem to have staved off the worst-case scenario of a US-subprime-crisis style collapse in the market.
The tapering off of price declines tracks closely with figures on real estate sales that the Bureau released last week.
The statistics on housing transactions showed that sales of new homes were down 9.9 percent nationwide in the first 10 months of 2014, compared to the value of housing sold during the same period last year.
However, these year-to-date figures mean that sales for the month of October fell by 3.1 percent in Renminbi terms, an improvement over the 10.3 percent annualised drop in sales recorded in September.
To no small extent it appears to be the wide availability of discounts and other incentives for buyers that is helping to lure a few more customers back into the marketplace.
Guangzhou Among the Leading Losers
Although the decline of its housing market slowed down from a 1.35 percent drop in September to only a 1.21 percent fall in October the southern metropolis of Guangzhou was still among the worst performing of China’s real estate markets last month. Of the 70 cities surveyed, only 10 scored worse than southern China’s largest cities.
Beijing’s 1.09 percent decline last month also put it far back in the pack in terms of housing market health, ranking the capital’s once booming market 53rd out of the 70 cities surveyed. Beijing’s market had declined only 0.75 percent during September.
Shenzhen was the fifth-best performing market surveyed with only a 0.41 percent decrease in prices during October, recovering from a 0.81 percent fall in September. Shanghai also scored comparatively well with at 0.51 percent decline last month, which ranked it fifteenth.
Surprisingly, Hangzhou’s market continued to show signs of improvement, with the city that once featured as the epicentre of the housing crunch now reporting the sixth best market in the nation, with only a 0.43 percent decline in prices during October.
Pressure is Off the Government But Developers Still Struggle with Inventory
The leveling off of the housing market should be good news for China’s policy-maker’s who may now feel less pressure to make further tweaks to credit or other policies. With Beijing already signalling that it is ok with slower growth, a tepid real estate market may be acceptable in the near term.
And given the huge inventories of unsold houses on the market and continued buyer reticence, there may not be much more the government can do without threatening to further inflate China’s credit bubble.