China’s sliding home prices fell even further in December as the end of the home buying season and a record-sized inventory of unsold homes led developers to offer larger incentives for prospective home buyers.
A survey released earlier this week by the China Index Academy, the research division of real estate information provider Soufun, reported that new home prices fell by 0.44 percent in December, compared to November. The same report indicated that, on an annual basis, home prices were down 2.69 percent last month, a sharper drop than the 1.57 percent decline seen in November, according to a report in the Wall Street Journal.
The faster rate of decline in the country’s housing market appears to reverse two months of more positive news for China’s real estate industry, and to show the limited effect that the government’s moves to free up credit and remove policy restrictions have had on the market so far.
Did China’s Real Estate Markets Just See a Dead Cat Bounce?
While few observers are surprised that the Index Academy report showed an eighth straight month of falling prices, the failure of the government’s efforts to revive the market mean that tougher times could be in store for the nation’s developers, now that the traditionally stronger sales months of October and November are over.
After real estate prices fell 0.98 percent in July, China’s government took steps to further the availability of mortgage credit, and reintroduced discounted home loans for eligible buyers. Sales in October and November were also bolstered by new government guidelines that widened the pool of buyers eligible for discounted mortgages and made it easier for consumers to buy second or third homes.
Many analysts also anticipated that the government’s decision to cut interest rates in late November would spur more home sales, but the unexpected move was not enough to sustain November’s upward momentum.
Now, with a chilly January and February’s Chinese New Year holiday usually dictating slower sales in the winter months, the December report also means that the government could soon take stronger measures to rekindle interest in home purchases and bail out developers, including a cut in bank reserve requirements, and the lifting of home purchase restrictions in the nation’s megacities of Shanghai, Beijing, Guangzhou and Shenzhen.
Some Cities Improving
Not all of the news was bad for the country’s property developers, however, as the number of cities reporting falling home prices decreased to 70 out of the 100 surveyed, after 76 had indicated a decline in prices during November.
Perhaps most important to the market, however, will be the ability of developers to attract more potential buyers into their showrooms. The recent $51 million default of Shenzhen-based developer Kaisa Group is likely to shake public confidence in the Guangdong province, just at a time when home builders are working to sell down a record-sized supply of unsold housing.
In the absence of further government stimulus, China’s real estate market is likely to see a return to even sharper decreases in home prices during January and February.
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