China home prices fall as property slowdown threatens economic outlook

New home prices in China fell for the second consecutive month in October, as a property slowdown and mounting distress at real estate developers clouded the country’s economic outlook.

Prices for new homes across 70 of China’s biggest cities fell by 0.25 per cent in October compared with the previous month, according to data from the country’s National Bureau of Statistics.

The metric, which also edged lower in September for the first time in more than half a decade, highlights rising pressure on policymakers who have sought to limit debt growth across the real estate sector but are now confronted with liquidity issues at many developers.

Last week, the US Federal Reserve warned that stresses within the property sector, which directly and indirectly accounts for more than a quarter of economic activity in China, posed “some risk to the US financial system”.

Tommy Wu, an economist at Oxford Economics, a research group, pointed to a 24 per cent decline in residential sales in October year-on-year, and suggested the real estate downturn was “weighing on industry” at a time when economic momentum remained weak.

“We think that China’s property downturn will be significant but contained, due to a low stock of unsold housing, room for policy easing, continuing urbanisation and significant income growth,” he said.

Goldman Sachs analysts said that prices rose 3.4 per cent year-on-year but added that “only a few cities saw higher property prices in primary and secondary markets in October”.

A crisis at Evergrande, the world’s most indebted property company, emerged over the summer and has since spread to a range of developers, which account for a large portion of Asia’s wider high-yield bond market. Many are struggling to access new financing.

Over recent months, against a backdrop of falling land sales, state developers have accounted for the majority of land purchases at auctions across 22 big Chinese cities.

China introduced measures constraining borrowing at developers last year amid fears over asset bubbles in its property market, and added caps on mortgage lending. Last week, reports in state media indicated a potential easing in some aspects of its approach.

Iris Pang, chief China economist at ING, noted concerns that real estate developers would default and construction activity stop, but said the worries “may be overdone” and pointed to the prospect of continued work on uncompleted projects and local government measures to limit price falls.

On Monday, Sunac, one of China’s biggest developers, said it had raised close to $1bn in a sale of new shares as well as shares in its services unit. Kaisa, a big borrower on international markets, said on Friday that it would not pay an interim dividend after a week in which its bond payments came under scrutiny.

Official data on Monday also showed retail sales beating expectations to rise 4.9 per cent year-on-year. Industrial production, which last year was a big driver of China’s rapid recovery from the pandemic, added 3.5 per cent. In the third quarter, the economy grew at its slowest pace in a year.

Nominal real estate investment contracted 5.4 per cent in October, according to Oxford Economics’ calculations based on official data, but remains up 7.2 per cent over the year to date.

Additional reporting by Andy Lin in Hong Kong