China Home Prices Drop in 91% of Largest Cities as Slump Steepens

The air continued to ease out of China’s housing bubble in July as average home prices slid by 0.9 percent nationwide, according to government figures released today.

Market data released by the National Bureau of Statistics indicated a third consecutive month of falling prices, with the rate of decrease falling ever faster from a 0.5 percent slide in June and a 0.2 percent drop in May.

In all, 91 percent – 64 out of 70 cities surveyed – reported falling average prices. The count was the highest percentage ever in China. The government figures came just days after China’s central bank announced an unexpectedly steep fall in lending.

According to a report released by the Bureau last week, housing sales in China falling 10.5 percent in terms of value, and 7.6 by area, during the period from January to July, when compared to the same months last year. This decrease in buyer demand is usually cited as the primary cause for falling prices, as developers become more willing to bargain in the face of rising inventories of unsold homes.

Although average July prices were still up 2.5 percent compared to the same month last year, that difference was down from the 4.1 percent year on year gain in June.

Government Data More Optimistic Than Private Surveys

While the bureau’s numbers indicate a downturn, they are still more positive than private surveys released earlier this month. In a survey of 288 cities in China released at the beginning of this month, the China Index Academy found that home prices fell 0.13 percent in July compared to June. 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.

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 slide 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.

Xiamen and Dali the Only Growing Markets

Xiamen in Fujian province and Dali in Yunnan were the only two cities where prices rose during July, with other communities either staying flat or seeing average prices drop.

Hangzhou in Zhejiang province continued to lead the losers with a month-on-month drop of 2.5 percent – a faster pace than the city’s 1.8 percent slide from May to June. Hangzhou’s July slide happened despite loosening of home purchase restrictions by the city government at the end of July.

China’s biggest cities, which traditionally have the strongest real estate markets, also saw housing prices fall, with average rates dropping 1.4 percent in Shanghai. Beijing and Guangzhou were next on the list with prices slumping 1.3 percent compared to last month and Shenzhen rates were off by 0.6 percent.

Credit Supply Tighter as Lenders Pull Back From Real Estate

News of the deepening real estate slump comes just one week after China’s central bank announced a surprising steep drop in lending during June.

The People’s Bank of China revealed on July 13th that lending slipped sharply in July to RMB 385 billion yuan ($62.58 billion), down approximately 65 percent compared to June.

In a recent survey of Chinese real estate developers by Standard Chartered, the vast majority of respondents said that it was more difficult to borrow money from banks now than it was three months ago, and trust financing was also seen as more challenging to obtain.