China’s real estate industry continues to struggle and shows no signs of reaching a bottom. In June, new home prices dropped by the largest margin in nine years, with real estate sales and investments declining as well, putting further pressure on the Chinese Communist Party (CCP).
According to data from China’s National Bureau of Statistics (NBS) analyzed by Reuters on Monday, July 15, new home prices in China fell by 4.5% compared to the same period last year, marking the largest drop since June 2015, exceeding the 3.9% decline seen in May.
Following a 0.7% drop in May, new home prices declined by 0.7% in June compared to the previous month.
At its peak, China’s real estate industry accounted for a quarter of the GDP, but since 2021, a series of major developers have defaulted, leading to many construction sites sitting idle. The stagnant housing market not only impacts the Chinese economy but also affects the wealth of its people, as a significant portion of Chinese household wealth is tied up in real estate. Currently, the industry remains a major drag on the Chinese economy.
In May, Beijing introduced a real estate policy plan that aimed to lower home purchase costs in major cities, relax mortgage rules, and encourage local governments to purchase unsold properties. However, investors and analysts have doubts about the effectiveness of these measures. The People’s Bank of China has limited funds available, and progress on pilot projects in several cities has been slow. The latest data on Monday showed that these measures failed to boost the housing market.
Harry Murphy Cruise, an economist at Moody’s Analytics, expressed in a research report that the recent support measures pale in comparison to the scale of the real estate industry’s problems, emphasizing that when this industry is hurt, the entire economy suffers.
Zhang Dawei, an analyst at China’s Ziroom Real Estate, stated that the supply and demand structure of the real estate industry has fundamentally reversed. He cautioned against placing high expectations on policy effects, emphasizing that “the industry is unlikely to see comprehensive growth in the future.”
China’s National Bureau of Statistics data revealed that real estate investment in the first half of 2024 dropped by 10.1% year-on-year, while housing sales area fell by 19.0%, with a 20.3% decline in the first five months of this year.
From July 15 to 18, the CCP’s top leadership convened a secret economic policy meeting known as the Third Plenum in Beijing. According to a report in the Financial Times on July 11, a prominent economist at a CCP government think tank cautioned against having overly high expectations for the Third Plenum. The analyst indicated that the market anticipated lackluster outcomes from the meeting.
Bloomberg reported on July 15 that few expected the Third Plenum, which began on Monday, to introduce more aggressive measures. Price pressure could persist due to developers and homeowners resorting to significant discounts to sell properties.
Analysts Kristy Hung and Monica Si at Bloomberg Intelligence wrote in a recent report that fears of catching falling knives could deter real estate investments. They added that oversupply in new and existing homes is increasing pressure for further price declines.
Investors remain unconvinced that the real estate market has bottomed out.
Hung, a Bloomberg Intelligence analyst, suggested that as long as people lack confidence in their jobs and hold a pessimistic view on property prices, recovery will face obstacles. “People are still wondering where the bottom of the housing prices is, to participate and buy properties,” he remarked.
Stock prices of Chinese real estate enterprises have further entered bear market territory, declining by 26% since the mid-May peak.