China’s real estate market still shows no signs of recovery Nikkei Chinese

Residential area outside Beijing

Data from China’s National Bureau of Statistics on August 15 showed that in July, the average price of new homes in 70 large and medium-sized cities fell 8% from the peak three years ago. Sales have been sluggish for a long time, and prices have not yet shown signs of bottoming out. The International Monetary Fund (IMF) suggested that the central government launch a 7 trillion yuan fiscal stimulus to solve the real estate problem.

If the fluctuation range of housing prices in 70 large and medium-sized cities is simply averaged, it is 0.6% lower in July than in the previous month. Since June 2023, there has been negative growth for 14 consecutive months.

Based on the average fluctuation of housing prices in 70 large and medium-sized cities, China’s housing prices peaked in August 2021. This coincided with the time when the government tightened real estate finance to curb bubbles and real estate development giants such as China Evergrande Group ran into difficulties in capital turnover. Concerns about real estate developers spread, and sales subsequently declined.

China ended its epidemic prevention measures in early 2023. As economic activities normalized, housing prices also rose in February of the same year, but fell again in June due to concerns about the future.

The smaller the city, the more obvious the average price drop. “Third-tier cities” fell by 10%, and “second-tier cities” at the provincial capital level fell by 5%. In contrast, “first-tier cities” such as Beijing, Shanghai, Guangzhou and Shenzhen only fell slightly.

The National Bureau of Statistics announced on August 15 that the sales area of ​​new homes from January to July 2024 was 50% lower than the same period in 2021. Compared with the decline in sales area, the price reduction is smaller because local governments have been limiting the price reduction of new homes.

Land in China is state-owned, and local governments have been selling the right to use it to real estate developers. If prices, which reflect the supply and demand of housing, fall sharply, the price of the right to use it will also face downward pressure. Local governments, which do not want to reduce their revenue, have been preventing a sharp drop in housing prices.

If we take into account the shrinking demand caused by the reduction in sales area, it can be said that housing prices still have room to fall further. Professor Yao Yang of Peking University, referring to the bursting of housing bubbles in Japan and the United States, believes that housing prices have not fallen sufficiently and should fall by 40% from the peak.

The biggest problem with Chinese real estate is that there are many projects that are interrupted midway due to lack of funds of real estate developers. Delivery delays are frequent, and the number of people who are unwilling to buy houses due to concerns about real estate developers has increased.

The long-term price cuts caused by sluggish sales have strengthened the view that “house prices will fall”. Many landlords are also eager to sell, and pessimistic expectations about the housing market have also accelerated the price decline.

The IMF gave suggestions on China’s real estate problems in its China Economic Assessment Report released on August 2, emphasizing that in order to speed up the resumption of construction of projects under construction and complete the delivery of houses, the central government needs to initiate temporary fiscal stimulus.

As for the specific scale of fiscal expenditure, it is stated that “if it is to be resolved within four years, fiscal expenditure equivalent to 5.5% of gross domestic product (GDP) will be required.” If calculated based on nominal GDP in 2023, it will reach about 7 trillion yuan.

The Chinese government has disputed the IMF’s view, saying existing policies are fully capable of bringing positive trends to the property market, noting there are no plans to spend extra on completing homes before they are sold.

The measures taken by the Chinese government so far have not had a substantial effect. New residential development has decreased, but sales have fallen more significantly, and as of the end of July, the inventory area of ​​newly built homes increased by 23% compared with a year ago. The purchase of inventory homes proposed in May also seems to have made no progress, and there is still no sign of relief from the real estate downturn.

Nikkei (Chinese version: Nikkei Chinese website) Kentaro Shiozaki Beijing

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