China Housing Decline Continues to Slow in November

China’s housing prices fell for a seventh straight month in November, but the rate of decline continued to taper off as government measures to revive the market began to take hold.

According to a report released yesterday by real estate information service China Index Academy, average new home prices in China dropped by 0.38 percent in November, just less than the 0.4 percent decline that the Academy recorded in October.

Stimulus Measures Starting to Take Hold

After double-digit month-on-month price increases during 2013 led the government to restrict credit and clamp down on home purchase restrictions, housing prices fell increasing quickly during 2014, until the authorities again reversed course.

During September prices slid by 0.9 percent, according to the Academy’s figures.

When loosening of home purchase restrictions from April to July failed to rein in the housing price slide, during August and September the government began reintroducing mortgage discounts and took steps to ensure greater availability of mortgage credit.

With housing inventory continuing to stack up, even in the country’s biggest cities, however, homes sales were slow to regain momentum as buyers eagerly awaited greater discounts. The ongoing slowdown in the industry that accounts for at least 15 percent of China’s GDP was seen as putting the country in danger of missing its 7.5 percent growth target for the year, and was also contributing to a sharp increase in bad debt.

Facing a potentially steeper than expected decline in both housing sales and the economy, the People’s Bank of China apparently bent to pressure from other parts of the government on November 21st, by cutting the benchmark one-year loan rate by 0.4 percentage points to 5.6 percent to encourage more borrowing. But this measure came too late to have much impact on the month’s housing prices.

Big Cities Already Recovering

However, even without time for the interest rates cut to take hold, home sales volume appears to already be on the increase. An independent survey of real estate developers by China Confidential, a research firm belonging to the Financial Times, found that the quantity of homes sold increased in November for the second month in a row.

The results of this increase in buyer interest, according to the Index Academy, are most pronounced in China’s largest cities, with Shanghai having the best performing market in the nation with a 1.18 percent rise in prices in November compared to October.

During November Shanghai took steps to loosen restrictions on home sales by redefining what qualifies as “luxury” housing. By allowing homes up to 140 square metres in area to be classified as “standard” , the city made it much easier for buyers to finance purchases of larger homes, and potentially boosted the average price per square metre paid in the city, with larger-sized homes usually being sold in high-end projects.

On average the survey found that China’s ten biggest cities witnessed a 0.07 percent month-on-month price jump in November.

Falling Prices Still Widespread

Despite the rising prices in Shanghai, however, the number of cities reporting falling prices in November actually increased to 76, compared to 73 in October.

The month-on-month fall in prices means that China’s average home price is now even further below what it was at this time last year, with home prices now down 1.57 percent compared to November 2013.

This annual rate of decline is much steeper than October’s 0.52 percent dropoff, which was the first year-on-year fall in prices that the Academy’s survey had reported since 2012.

Both October and November are traditionally among the strongest months in China for home sales, so the failure to stop the housing slide helps to explain the November 21st decision to cut interest rates. Moreover, while the slide in home prices appears to be abating, the ongoing feebleness of the market makes it more likely that further interest rate cuts, and tweaks to bank reserve ratios, may be on the way next year.