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China's September Home Price Index Falls, The First Monthly Drop In 6 Years And Sign Of The Coming Winter For The Real Estate Market

The average cost of a new home in China fell by 0.1 per cent in September from last year, according to the price data of 70 major cities tracked by the National Bureau of Statistics The monthly decline was the first since May 2015, in contrast to the 0.2 per cent increase in August

China's September Home Price Index Falls, The First Monthly Drop In 6 Years And Sign Of The Coming Winter For The Real Estate Market

China's monthly benchmark price index of new homes fell for the first time in more than six years, confirming the real estate slump that dragged the nation's economy to its slowest quarterly growth pace since September 2020.

The average cost of a new home in China fell by 0.1 per cent in September from last year, according to the price data of 70 major cities tracked by the National Bureau of Statistics (NBS) released on Wednesday. The monthly decline was the first since May 2015, in contrast to the 0.2 per cent increase in August.

"The housing market is clearly cooling down, and the major issue now has turned from [a problem of] overheating to [being] too cold," said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute.

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The slowdown underscores the challenges facing China's policymakers and monetary authorities in cooling the speculative fervour in the property sector - and its outsize role in the world's second-largest economy - without sending the entire industry into a deep freeze. Real estate output shrank 1.6 per cent in the third quarter, causing the construction industry to shrivel by 1.8 per cent, adding to the 4.9 per cent decline in economic growth in the three months ended September.

Property buyers at a showroom of the property developer Yango in the Henan provincial city of Xuchang on February 19, 2019. Photo: Reuters.

Property buyers at a showroom of the property developer Yango in the Henan provincial city of Xuchang on February 19, 2019. Photo: Reuters.

Declines were led by a 1 per cent drop in new home prices in the Guangdong provincial city of Zhanjiang, with an urban population of fewer than 2 million residents. Prices fell by 0.01 per cent in the provincial capital of Guangzhou, where local authorities barred the second-hand sales of affordable homes and raised the tax on homes that are resold within five years of their purchases.

"China's ongoing property slowdown is having a meaningful impact on [the economy's] near-term growth outlook," said Fitch Ratings' senior director Andrew Fennell, who estimated that property accounts for about 14 per cent of China's economy. "We expect residential construction to slow in the medium term, which is likely to have implications for China's own trend growth rate, with potential spillovers for global commodity exporters."

Source: National Bureau of Statistics of China, SCMP Graphics

Source: National Bureau of Statistics of China, SCMP Graphics

China's real estate and construction industries, which together account for 27.8 million jobs, or 25 per cent of the urban non-private labour force, contracted for the first time since the first quarter of 2020 at the start of the Covid-19 global pandemic, which forced work to stop at all construction sites.

Housing is one of the most closely scrutinised basic needs in China because the Communist Party is anxious to avoid any market flaws to boil over to become socio-political strife, least of all during important anniversaries such as 2021, when the ruling party marks the centenary of its establishment.

The most recent campaign to cool the market began in late 2016 with administrative measures by a dozen local authorities to rein in runaway prices, in answer to the Chinese President Xi Jinping's decree that houses are for living, not for speculation." The orchestrated cooling measures reached their crescendo last year when the central bank rolled out three stringent rules to curb the loans undertaken by developers such as China Evergrande Group, which typically finance their projects through debt.

Home buyers looking at real estate advertisements on display at Lianjia, China's biggest real estate brokerage agency, in Shanghai on Mar. 05, 2016. Photo: Lai Xinlin

Home buyers looking at real estate advertisements on display at Lianjia, China's biggest real estate brokerage agency, in Shanghai on Mar. 05, 2016. Photo: Lai Xinlin

Evergrande, saddled with US$305 billion of liabilities, stoked concerns after it failed to pay interest on two bonds last month, invoking a 30-day grace period to avoid a default. Founder Hui Ka-yan is rushing to sell assets for cash, prompting authorities to warn the developer about its financial standing, causing banks in Hong Kong to withhold mortgage loans for its projects. To assuage customers and banks, Hui led his senior executives in a ceremony to pledge that Evergrande would complete and deliver all of its homes on time.

Chinese local governments withdrew 206 plots of land from auctions in major cities last month as buyers tightened their finances after Evergrande's debt crisis roiled the property market.

"The government now should closely monitor the sector to prevent a sharp decrease of home price and land price which may cause market panic," said Yan.

The authorities are already recalibrating macro policies to cushion the impact of slowing activity.

The average mortgage rate in major cities for the first-home purchase in October was 5.73 per cent, 1 basis point down from last month, according to Beike Research Institute.

"We will see an improving mortgage environment in the coming quarter to ease the pressure on the sector," said Xu Xiaole, the chief analyst at Beike Research Institute.

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