Slump in house prices in China continues in spite of billions in government supports

China’s property slump deepened despite policies aimed at boosting the market and government support worth tens of billions of euro as industrial output growth slowed in May. Industrial production rose by 5.6 per cent compared to a year earlier, down from 6.7 per cent in April and below most analysts’ expectations.

Prices for new homes in China’s major cities fell by 4.3 per cent in May compared with a year earlier, a steeper decline than April’s fall of 3.5 per cent. Second-hand home prices fell even further, dropping by 7.5 per cent in May, compared to a 6.8 per cent fall in April.

Retail sales grew faster than expected, boosted by a five-day public holiday in May, up 3.7 per cent compared to a year ago and up from 2.3 per cent in April. Tourism revenue was up 12.7 per cent compared to last year’s May holiday and was 13.5 per cent higher than in 2019, before the coronavirus pandemic.

“The overall performance of the national economy was stable,” National Bureau of Statistics spokeswoman Liu Aihua told a press conference in Beijing on Monday. “However, we should be aware that the external environment is complex and severe, effective demands remain insufficient at home, and a sustained economic recovery is still confronted with multiple difficulties and challenges.”

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Prices for new homes were 0.7 per cent lower in May than in April, the 11th consecutive month-on-month fall and the sharpest single drop in almost a decade. Property investment fell by 10.1 per cent in the first five months of the year and the decline is accelerating.

China’s property market, once responsible for a quarter of economic growth, is now a drag on the recovery. The slowdown was triggered by a regulatory crackdown aimed at deflating a property bubble and exacerbated by high levels of debt among developers and local authorities, as well as demographic pressures.

The Chinese authorities introduced a number of measures in recent months aimed at reviving the property market, including the abolition of minimum interest rates on mortgages. The most ambitious measure was last month’s 300 billion yuan (€38bn) re-lending programme that provided banks with funds from the People’s Bank of China to help state-owned companies buy property.

The idea is that the state-owned enterprises will buy millions of unsold homes at reasonable prices and convert them into social housing. The government hopes that if much of the unsold housing inventory is mopped up the market will start to recover as buyers return.

“We must acknowledge that it will take some time for the effects of policy measures to be shown, and that the real estate market is still in the process of adjustment,” Ms Liu said.

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