China’s real estate industry continues to struggle, and finding a bottom seems elusive. In June, new home prices recorded the largest drop in nine years, with real estate sales and investments also declining, putting further pressure on the Chinese Communist Party.
On Monday (July 15), according to data from the National Bureau of Statistics of China (NBS) cited by Reuters, new home prices in China fell by 4.5% compared to the same period last year, marking the lowest level since June 2015, exceeding the 3.9% decline in May.
Following a 0.7% decline in May, new home prices in June dropped by 0.7% month-on-month.
At its peak, China’s real estate industry accounted for a quarter of GDP. However, since 2021, a series of large developers have defaulted one after another, leading to a large number of idle construction sites. The real estate market has slumped, impacting not only the Chinese economy but also the wealth of Chinese people, as a significant portion of Chinese household wealth is tied up in real estate. The industry has now become a major drag on the Chinese economy.
In May, Beijing introduced a real estate policy plan aimed at reducing home-buying costs in major cities, relaxing mortgage rules, and encouraging local governments to purchase unsold housing. However, investors and analysts doubt the effectiveness of these measures. So far, the funds announced by the central bank have been limited, and progress on several pilot projects in various cities has been slow. The latest data on Monday indicates that these measures have not been able to boost the housing market.
Reuters reported that Harry Murphy Cruise, an economist at Moody’s Analytics, stated in a research report that the recent support measures are still inadequate compared to the scale of the (real estate industry) problem, as “when this industry is hurt, the entire economy is affected.”
Zhang Dawei, an analyst at Centaline Property, said: “The supply-demand structure of the real estate industry has fundamentally reversed. (The market) should not have overly high expectations for policy effectiveness.”
“The industry is unlikely to see comprehensive growth in the future,” Zhang said.
According to data from the National Bureau of Statistics of China, real estate investment in the first half of 2024 decreased by 10.1% year-on-year, while property sales area dropped by 19.0%. In the first five months of this year, the figures declined by 20.3%.
The top leadership of the Chinese Communist Party held a secret economic policy-making meeting, the Third Plenum, in Beijing from July 15 to 18. The Financial Times reported on July 11 that a prominent economist at a Chinese government think tank warned against having high expectations for the Third Plenum. The economist mentioned that the market had already anticipated that the meeting outcome would be unremarkable.
Bloomberg also reported on July 15 that few people expected the Third Plenum, which started on Monday, to introduce more aggressive measures. Due to developers and homeowners resorting to significant discounts to sell properties, price pressures may continue to exist.
In a recent report, Bloomberg Intelligence analysts Kristy Hung and Monica Si wrote: “Fear of catching a falling knife may prevent real estate investment.”
“The oversupply of new and existing home inventories has added pressure for further price declines,” they stated.
Currently, investors do not believe that the real estate market has hit bottom.
Bloomberg Intelligence analyst Hung mentioned that as long as people lack confidence in their jobs and remain pessimistic about housing prices, recovery will face obstacles. “People are still questioning where the bottom of housing prices is, in order to participate and buy real estate,” he said.
Stock prices of Chinese real estate companies have further entered into a bear market, falling by 26% since the mid-May peak.