New house sales slump amid property crisis in China
Aug 16, 2024
Beijing [China], August 16 : Prices of new homes across 70 major Chinese cities dropped 8 per cent on average in July, according to data released Thursday. The fall in property prices was witnessed in the country when the market continued to observe a property slump, Nikkei Asia reported citing data.
Property prices fell by 0.6 per cent in June, Nikkei Asia reported citing data from China's National Bureau of Statistics.
China's housing market had peaked in August 2021. The government at that time had tightened property financing restrictions which pushed the leading developers like China's Evergrande Group into crisis and dropped housing sales, Nikkei Asia reported.
The three-tier cities in China have witnessed a 10 per cent drop in prices over the last three years. Similarly, second-tier cities including provincial capitals, saw a 5 percent decrease. First-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen saw only a narrow decline. Meanwhile, the prices of pre-owned homes, which are more volatile, fell in 67 out of 70 cities in July in China, Nikkei Asia report claimed.
Chinese governments rely on the sale of state-owned lands to property developers to fund their government expenses. Nosediving, house prices put pressure on the price of these government lands. The Nikkei Asia report claimed that weak property demand points out that the housing prices could continue to decline.
Based on past property crashes in Japan and the US, prices in China could fall as much as about 40 per cent from their peak, Nikkei Asia quoted Yao Yang, an economics professor at Peking University.
One of the biggest challenges in the property sector is projects that are abandoned before completion by developers as they may have run out of cash, Nikkei Asia stated.
The Nikkei Asia report quoted a report published by the International Monetary Fund which had raised concern over China's continued property crisis. It commented that the Chinese central government should provide support to address the issues of unfinished housing.
The IMF report estimated that the necessary fiscal spending amounts to 5.5 per cent of gross domestic product over four years roughly 7 trillion yuan (USD 979 billion) based on the 2023 figure. However, the Chinese government hit back, saying existing policies were sufficient to bring a "positive trend" to the property market. But its efforts have done little to lift sales so far, Nikkei Asia reported.
