SHANGHAI—The average price of new homes in 70 Chinese cities fell further in February amid sluggish demand due to the Lunar New Year holiday and fears among potential home buyers of more price cuts.
On a year-over-year basis, the average price of new homes dropped 5.7 per cent in February, after a 5.1 per cent decrease in January and a 4.3 per cent fall in December. It was the sixth month in a row of declines, based on The Wall Street Journal’s calculations from data released Wednesday by the National Bureau of Statistics.
The pain in China’s property market is likely to continue despite Beijing’s efforts to help the economy, analysts said, noting that so far only major cities such as Beijing and Shanghai are showing signs of recovering.
Housing sales in the third and fourth tier cities account for around two-thirds of the country’s real-estate market, and the persistent weakness in demand in such cities has been a drag on the world’s second-largest economy.
A sharp decline in housing sales has been a factor in the government efforts to boost the economy. The central bank announced a cut in benchmark interest rates in late February, following a reduction in November, and let banks lend more by reducing the portion of their deposits they need to set aside as reserves.
On a month-over-month basis, prices in February slipped 0.43 per cent, unchanged from the 0.43 per cent fall in January, but widening from December’s 0.40 per cent decline, according to calculations by The Wall Street Journal.
Private-sector home prices fell in 69 of 70 cities in February from a year earlier, unchanged from the 69 cities that posted declines in January. On a month-over-month basis, home prices fell in 66 of 70 cities in February, compared with January’s 64.
“The government can’t ignore the property market at this juncture,” said Rosealea Yao, an analyst at Gavekal Dragonomics.
She added that she expects Beijing to ease more policies, including lower down-payment requirements, and make further cuts in interest rates or banks’ reserve requirements.
Many Chinese cities are still saddled with high inventories of unsold homes, and authorities in a number of provinces have said they are buying up private housing units to convert them into housing for lower-income households.
But many Chinese individuals remain nervous about the market. Diminished hopes for a turnaround in home prices and expectations that property taxes could be put in place soon have driven some investors to look for opportunities abroad.
“Many of my customers are worried about the value of their property in China,” said Zita Wong, an adviser at Griffin Plutus, a wealth management firm based in Shanghai. “They are no longer looking for property here and are instead looking for assets abroad as a hedge.”
Premier Li Keqiang said Sunday that China has ample tools to “intensify fine-tuning measures to assure market confidence,” suggesting that Beijing is willing to lend support to the economy to keep it humming. He noted that China’s urbanization drive should help the housing market and genuine demand for homes remain strong.
China’s real estate sector is estimated to account for nearly one-quarter of gross domestic product when construction, cement, steel, chemicals, furniture and related industries are factored in. Housing sales nationwide fell 16.7 per cent to 498.3 billion yuan ($79.6 billion), the steepest decline in three years since a 24.7 per cent plunge recorded in the January-February period in 2012. For the whole of 2014, housing sales slipped 7.4 per cent.
China posted 7.4 per cent economic growth last year, its worst performance in nearly a quarter of a century. It has set an even lower target this year of 7 per cent but some analysts say it could fall short of its objective.
“The property market will have to switch to boosting the economy from being a drag in order to hit the 7 per cent GDP growth target this year,” said ING economist Tim Condon.