China’s Economic Prospects Shadowed by First New Home Price Drop of 2023

In July, China experienced a notable event as new home prices declined for the first time this year. This occurrence adds to a series of discouraging data that collectively indicate a swift wane in overall economic momentum. It underscores the pressing need for more robust policy interventions to stimulate activity and counter these downward trends.

According to calculations by Reuters, the month-on-month drop in new home prices was measured at 0.2%, following June’s stagnant performance. These figures are based on data from the National Bureau of Statistics (NBS). Additionally, prices were down 0.1% compared to the previous year, following a similarly static result in June.

The decrease in home prices aligns with a backdrop of escalating debt concerns within prominent developers, coupled with a decline in property investment and home sales. Most experts anticipate further dips in both prices and sales over the upcoming months, posing a challenge to policymakers who are grappling with mounting pressures across multiple sectors due to weak demand.

The information released on August 15 adds to a collection of feeble economic indicators observed over the past month or so. This has prompted observers of China’s economy to call for more substantial support measures from authorities to counteract the ongoing downward trajectory of growth.

Despite previous efforts to provide financial assistance to developers and incentives for first-time home buyers and those looking to upgrade, China’s property sector, once a cornerstone of economic expansion, continues to face difficulties. Among 70 cities, 49 experienced declines in new home prices in July, a significant increase from the 38 cities that recorded such drops in the previous month.

In a politburo meeting held last month, China’s top leaders pledged to revise property policies. The housing regulatory body has also advocated for actions to bolster the sector, including reducing home mortgage rates, revising down payment ratios for first-time home buyers, and easing mortgage restrictions for those seeking to upgrade their residences.

Certain cities, like Zhengzhou, have already relaxed certain property restrictions in an effort to uplift sentiment. Provincial capitals such as Xian and Fuzhou are also contemplating reductions in down payment ratios for individuals looking to purchase their second homes.

Economists at Goldman Sachs anticipate further measures to ease housing regulations in the coming months. These measures might involve additional reductions in down payment ratios and a more relaxed approach to home purchase restrictions in larger cities, among other strategies.

Nevertheless, most economists predict that the downward trend in both home sales and prices will persist for a considerable duration. High-frequency data for early August fails to indicate any significant improvement in the property market, as noted by Wang Tao, Head of Asia Economics and Chief China Economist at UBS Investment Bank. Without substantial policy adjustments or fiscal support, property sales and investment might continue to weaken or remain at a low point for an extended period, as articulated by Wang.