China’s Property Crisis Deepens As New Home Sales Plummet

In July, new home prices across 70 major Chinese cities fell by an average of 8%, according to data released on Thursday. This decline comes amidst a continued slump in the property market, Nikkei Asia reported, citing figures from China’s National Bureau of Statistics.

Property prices had already dropped by 0.6% in June. The Chinese housing market reached its peak in August 2021, but the subsequent tightening of property financing restrictions led to a crisis among major developers like Evergrande Group, resulting in decreased housing sales.

Over the past three years, prices in third-tier cities have fallen by 10%, while second-tier cities, including provincial capitals, experienced a 5% drop. First-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen saw only a slight decline. Additionally, prices for pre-owned homes, which are more volatile, fell in 67 out of 70 cities in July.

The Chinese government relies on selling state-owned land to property developers to fund its expenditures. As property prices continue to plummet, this has put pressure on land prices. The weak demand suggests that housing prices may keep declining, with projections indicating a possible drop of up to 40% from their peak, according to Yao Yang, an economics professor at Peking University, as quoted by Nikkei Asia.

A major issue in the sector is the abandonment of projects by developers who may have run out of funds. The International Monetary Fund (IMF) has expressed concern over China’s ongoing property crisis, recommending substantial fiscal support to address unfinished housing issues. The IMF estimates that such spending would need to be about 5.5% of GDP over four years, roughly 7 trillion yuan (USD 979 billion) based on 2023 figures. However, the Chinese government has responded by asserting that current policies are sufficient to create a “positive trend” in the property market, though sales have not significantly improved, Nikkei Asia reported.