China's housing market continued to struggle in May, with new and existing home prices falling at their fastest pace in over a decade despite the Chinese government's efforts to stimulate demand through various measures. According to data from the National Bureau of Statistics (NBS), new-home prices dropped 0.71% from April, marking the most significant decline since October 2014. Existing home values also saw a sharp decrease of 1%, which is the largest drop since at least 2011 when China started using the current data collection method.
Three of China's biggest cities - Shanghai, Shenzhen, and Guangzhou - have rolled out major easing measures for homebuyers to boost demand. These measures include cutting down payments and easing mortgage rules. However, capital city Beijing has remained unmoved in implementing such easing measures.
Despite these efforts, China's property sector is expected to diverge with new home sales in large cities being driven by those who have been able to renovate and sell their existing homes. In contrast, real estate in small cities is expected to continue falling due to a housing oversupply and population outflows.
Property investment fell 10.1% in the first five months of the year from a year earlier, according to NBS data. Home sales also dropped at a faster pace during this period.
The Chinese government has taken several steps to prop up the crisis-hit property sector, including facilitating 300 billion yuan ($41.35 billion) to clear massive housing inventory and cutting interest rates and fees to support homeowners who want to improve their homes.
However, analysts believe that these measures will do little to absorb the massive housing inventory or resolve the confidence crisis in the new-home market. The lifting of home purchase restrictions in major cities might further dampen buying sentiment in smaller cities.
The property sector was once a key engine of China's economic growth but has been hit by several crises since mid-2021, including developers defaulting on debt and stalling construction on pre-sold housing projects. The latest policies have boosted the second-hand home market in major cities, but the liquidity problem of real estate enterprises has not yet been eased.
