China’s housing crisis: Chinese home prices fall in February as property woes deepen

China’s housing market displayed continued weakness in February, with new home prices declining for the eighth consecutive month, according to official data released on Friday.  

The National Bureau of Statistics reported that average prices for new homes in tier-one cities dropped by 1 per cent compared to the previous year, while second-hand home prices fell by 6.3 per cent. 

This decline was more pronounced in southern cities like Guangzhou and Shenzhen, where new home prices decreased by 4.6 per cent and 4.8 per cent, respectively.  

“Given the heavy weighting of property in household portfolios, it is of the utmost importance for China to stabilise the property market if it is to restore confidence. Declining property prices will create a negative wealth effect, acting as a headwind to consumption,” said Lynn Song, Chief Economist, Greater China at ING. 

“Measures including scrapping purchase restrictions, property project whitelists, and the February cut to the 5-year loan prime rate to help lower mortgage rates are steps in the right direction, but further supportive policies may still be needed. Establishing a trough for house prices would go a long way towards stabilising sentiment.” 

Moody’s recent downgrade of the debt rating of Vanke, a major state-backed developer in Shenzhen, highlights further challenges in the sector, the FT reported. 

China’s economy has been grappling with sluggish growth, particularly in the real estate sector, due to a significant debt crisis among property developers. This has led to weakened consumer sentiment for home purchases, impacting a critical aspect of China’s economic landscape. 

Despite these hurdles, China has set an ambitious economic growth target of around 5 per cent for the current year. However, achieving this goal will require overcoming various economic challenges, including the slowdown in the real estate market and declining investor confidence. 

“We anticipate that real estate will remain the main drag on growth in 2024, and this drag is likely to persist over the medium term, as it will take time to work through excess housing inventories,” ING Song added. 

“Real estate investment is likely to remain in negative growth for the year, and the property sector and connected industries will likely continue to see pressure for consolidation.” 

Meanwhile, China’s central bank decided to maintain its key policy rate unchanged while withdrawing funds from a medium-term policy loan operation. This move aims to stabilize the currency amidst uncertainties surrounding potential changes in Federal Reserve interest rates.  

The People’s Bank of China (PBOC) kept the rate for one-year medium-term lending facility (MLF) loans at 2.50 per cent, resulting in a net withdrawal of 94 billion yuan from the banking system. This marks the first withdrawal of cash through this liquidity tool since November 2022.