China Home Prices Falling Faster Despite Govt Stimulus

Home prices across China fell at a faster pace in July according to two private surveys of the housing market. The downward trend appears to show that the government’s moves to prop up the once sky-rocketing real estate sector have so far failed to stop an extended decline in the nation’s housing market.

According to a survey of 288 cities across China conducted by the China Index Academy (a unit of real estate agency E-House) average home prices fell 0.13 percent last month compared to June to RMB 10,835 (US$1753) per square metre. The fall came at a faster pace than the 0.06 percent average decline that the June edition of the survey had revealed and marked the fourth straight month of falling average prices.

Even China’s strongest housing markets were not exempt from the trend, with prices falling 0.5 percent in Shanghai and 1.6 percent in Beijing during July.

Although the E-House report showed that average home prices for July were still up 4.3 percent over the same period in 2013, that year on year margin was down from the 5.3 percent spread achieved in June.

A competing survey from real estate website Soufun’s China Real Estate Index System (CREIS) also showed average home prices falling more quickly last month with a nationwide decline of 0.8 percent, compared to 0.5 percent during June. July was the third straight month that Soufun’s survey indicated declining average prices across China after a two year run of price increases.

On a year on year basis, the Soufun survey also showed prices remain above the mark from July 2013 by 4.7 percent, although this also indicated some compression compared to June’s 6.5 percent gain over the same month in 2013.

Among the 100 cities that Soufun surveyed, 76 communities had declining average prices, compared to only 71 in June. A government survey of June prices released in mid-July indicated falling prices in 55 out of 70 cities.

Continuing Decline Despite Lifting of Home Purchase Restrictions

Although the decline in prices doesn’t seem to indicate distress or panic selling, it does show that some recent government measures to stabilise the housing market have not reversed the trend towards falling prices.

During the past few months more than twenty of China’s largest cities, excluding the first-tier communities of Shanghai, Beijing, Guangzhou and Shenzhen, are said to have lifted some or all of the home purchase restrictions put in place to cool down the market during 2010 and 2011.

Also during recent months government banks have restored discounted mortgages for first-time home buyers as a way to stimulate demand.

However, buyers who once felt pressured to jump into the housing market before prices rose further, now seem content to wait and watch for the market to fall.

Last week Morgan Stanley’s Chief Economist for Greater China predicted that, while China’s real estate market is unlikely to collapse, it could fall as much as 20 percent as a result of the current downward pressures.