Chinese house prices suffer the biggest monthly drop in 13 years

Property prices in China are caught in a downward spiral—a sign that aggressive Chinese policies designed to reanimate its ailing housing sector have yet to have a meaningful impact.

In May, the value of existing homes plunged by 1%, the biggest monthly drop in at least 13 years. Meanwhile, the cost of a new build fell 0.71% month over month.

On a yearly basis, existing homes now cost 7.5% less than 12 months ago, while new homes have fared slightly better, with a 4.3% drop over the same timeframe.

To revive the housing market, the Chinese government has relaxed down payment rules for borrowers, cut mortgage rates, and spent $42 billion on buying excess stock.

Critics argue, however, that Beijing will need to do much more to reverse the market's fortunes. According to them, many potential buyers are still sitting on the sidelines in anticipation of lower prices.

While many countries are suffering from a housing squeeze, with demand comfortably outstripping supply, China has the opposite problem: an estimated 60 million unsold apartments.

Data from China Real Estate Information Corp suggests that Beijing is bearing the brunt of the oversupply crisis, but the capital is yet to benefit from the buyer-friendly policies implemented elsewhere in the country.

China's cabinet has urged officials nationwide to be creative in launching new policies that would attract consumers and help them get on the property ladder.

"We should steadily and concretely push forward the work of digesting and revitalizing existing homes and land with an open mind and broadened thinking," a statement earlier this month said.

Many analysts anticipate that further steps to revitalize the sector will be taken if house price data fails to improve over the summer.

In a recent media briefing, Liu Aihua, a spokesperson for the National Bureau of Statistics (NBS), said that the Chinese policies will take more time to come into full effect.

Investment and construction shrink, too

NBS data also shows that property investment in China was 10.1% lower between January and May than the year before. Meanwhile, property sales by floor area plummeted by 20.3% over the same period.

There has also been a 24.2% drop in new construction starts during the first five months of 2024—with the funding awarded to property developers falling by a similar amount.

Much of the market's woes date back to 2020 when borrowing was restricted to some of the country's largest real estate firms.

Evergrande—once the world's most indebted developer—missed several bond payments and had its projects suspended nationwide. The company, which had a debt pile of $300 billion, received a liquidation order earlier this year.

Another big developer, Country Garden, is also battling for survival as it faces the threat of liquidation. Negotiations on restructuring debt are underway with offshore creditors, and a court hearing is due to take place in late July.

Country Garden's collapse would be yet another blow to China's beleaguered economy.