China's property market continues to struggle, with the latest data revealing the most significant drop in new home prices in nearly a decade. Despite Beijing's efforts to stabilize the sector, the National Bureau of Statistics (NBS) reported that prices in 70 major cities fell by 0.7% in May from April. This marks the steepest month-on-month decline since October 2014, according to Reuters calculations. The Macquarie Group also noted that existing home prices in these cities plummeted by 7.5% year-on-year, the largest recorded decline.
Last month, Beijing introduced a comprehensive rescue package to revive the beleaguered property market. Measures included asking local governments to purchase unsold homes from distressed developers and easing rules on property purchases. Analysts from Societe Generale cautioned that it is too soon to expect significant impacts from these measures. They emphasized that initiatives such as providing cheap loans to state-owned enterprises for buying unsold homes will take time to influence the market.
Despite these efforts, other indicators from the real estate sector remain bleak. The NBS reported a 10.1% drop in property investment for the first five months of the year compared to the same period last year. Additionally, new property sales fell by 28% during the same timeframe, underscoring the severity of the market's downturn.
However, the broader Chinese economy displayed mixed signals. Retail sales saw a 3.7% increase in May, up from a 2.3% rise in April, thanks in part to government trade-in programs for used cars and old home appliances, as well as spending during the Labor Day "Golden Week" holiday. Despite this uptick, industrial output growth slowed to 5.6% in May from 6.7% in April, and fixed asset investment also fell short of expectations.
Exports provided a bright spot, jumping 7.6% in May, the fastest pace since April 2023. However, imports fell short of estimates, highlighting the uneven nature of China's economic recovery. Analysts from Macquarie pointed out that while exports are driving growth, the property sector continues to act as a significant drag on the economy.
The threat of deflation looms large, with domestic demand remaining weak. The consumer price index inched up by just 0.3% in May, unchanged from April, and slightly below expectations. Meanwhile, producer prices fell for the 20th consecutive month, dropping by 1.4%.
"While China's growth remains uneven, we think more policy support is likely to come through to help keep growth on track for this year's GDP growth target of around 5%," said analysts from HSBC. They added that more attention will be focused on next month's Third Plenum of the Communist Party, which will highlight economic reforms for the coming years.
The ongoing crisis in China's housing sector has not only affected the domestic economy but also poses risks to global markets. New-home prices in 70 cities fell by 0.71% in May compared to April, the steepest drop since October 2014. Existing home values also plunged, with a 1% drop in May marking the biggest decline since at least 2011. Year-on-year, new-home prices fell by 4.3%, while existing-home values plummeted by 7.5%.
Despite the Chinese leadership's efforts to address the slump with a sweeping rescue package, the market has yet to show significant improvement. The rescue package included relaxing mortgage rules and asking local governments to buy unsold homes from troubled developers. The People's Bank of China also announced a 300 billion yuan ($41.5 billion) loan program to support these efforts.
However, the recovery process remains slow, and oversupply continues to drag prices lower. Bloomberg reported that China's State Council has urged officials to remain open-minded about formulating new policies to reduce supply and stabilize the market. "We should steadily and concretely push forward the work of digesting and revitalizing existing homes and land with an open mind and broadened thinking," the cabinet stated.
