China’s real estate woes deepen in August as prices, sales and investment tumble

By Liangping Gao and Ryan Woo

BEIJING (Reuters) – China’s housing market woes deepened in August, with official data showing house prices, sales and investment all tumbled in August amid a mortgage boycott and financial strains from developers have further damaged confidence in the sector.

New home prices resumed their month-on-month decline in August, down 0.3%, according to Reuters calculations based on data from the National Bureau of Statistics (NBS), dragged down by weakness demand in small towns amid continued slow deliveries by heavily indebted developers. Prices remained unchanged in June and July.

More importantly, prices extended their year-over-year contraction for the fourth month of August, with prices falling 1.3% last month, the fastest annual pace in seven years, and suggesting longer-term homebuyer aversion.

Worsening housing problems are weighing on the outlook for the world’s second-largest economy, which narrowly escaped a contraction in the second quarter. The sector, once a key driver of economic growth, has gone from crisis to crisis since 2020 after regulators stepped in to reduce developers’ excess debt.

“The sector is still finding its bottom, although it is getting closer, even though policies have been relaxed in all areas,” said Zhang Dawei, chief analyst at real estate agency Centaline.

Authorities have taken steps to support the sector this year, including easing on home purchases, lower down payments, cuts in mortgage interest rates and a deeper reduction in the sale price of homes.

Zhang said he expected Chinese authorities to roll out more measures in Tier 1 cities such as Beijing and Shanghai and Tier 2 cities to stabilize the market and restore buyer confidence in the short term.

Confidence in the sector has been shaken by a mortgage boycott across the country since late June as developers stopped building pre-sold housing projects due to tight cash and strict COVID restrictions.

On Friday, separate data from the statistics office showed home sales fell for a 13th straight month in August, which did little to boost sentiment.

Property sales by floor area fell 22.58% year-on-year, according to Reuters calculations based on NBS data, the sixth month in a row they have suffered double-digit falls. Sales fell 23.0% year-on-year in the January-August period.

After the data was released, the CSI Real Estate index on mainland stock markets fell 1.73%. The Hang Seng Mainland Properties Index in Hong Kong fell 0.73%.

Month-to-month price declines spread to more cities in August as unfinished projects across China increasingly weighed on long-term sentiment.

Of the 70 cities surveyed by the NBS, 50 reported price drops in August, compared to 40 cities in July.

Home prices fell 0.2% and 0.4% in Tier Two and Tier Three cities respectively, according to official data.

“It will take some time for the pool of unfinished real estate construction projects to be completed with local government support for developers, and in turn, for Chinese households to consider large-scale real estate investment again. “, said Robert Carnell, regional head of research at ING.

“Therefore, these numbers are likely to remain a blot on the economic landscape for quite some time.”

Real estate investment and new construction starts by developers also fell in August, suggesting that many property companies were still focused on paying down debt instead of launching new projects.

Investment fell 13.8% year-on-year in August after falling 12.3% in July. It lost 7.4% over the January-August period.

New construction starts as measured by floor area plunged 45.7% year-on-year — its biggest drop in nearly a decade — after falling 45.4% in July.

The Chinese yuan, also known as the renminbi, falling below 7 to the dollar on Friday would only add to the woes for developers.

Chinese real estate companies are the country’s largest issuers of dollar bonds, and the depreciation of the yuan would only make it more expensive for them to refinance their debt.

(Reporting by Liangping Gao and Ryan Woo; Editing by Muralikumar Anantharaman and Ana Nicolaci da Costa)

Copyright 2022 Thomson Reuters.

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