China's property sector contracts further.
Home prices fall at the fastest pace since Nov 2021.
Home prices in China fell at the fastest pace in over two years in August, as a combination of the coronavirus pandemic and a mortgage boycott continued to weigh on the sector. According to Reuters calculations based on National Bureau of Statistics (NBS) data, prices fell 0.3% month-on-month, extending a 1.3% decline from a year earlier.
The drop in prices was driven by falls in both new home prices, which fell 0.4% month-on-month, and second-hand home prices, which declined 0.2% from the previous month. Prices have now fallen for four consecutive months, and are down 2.7% from their peak in April.
The sharpest declines were seen in tier three and tier four cities, where prices fell 1.1% and 1.0% respectively from the previous month. This is likely due to the fact that these cities have been most affected by the coronavirus pandemic and the resulting economic slowdown.
Property investment falls at the fastest pace since early 2020.
Property investment in China also fell sharply in August, declining 7.4% year-on-year according to official data released on Friday. This is the steepest decline since January-March 2020, and extends a 6.4% decline seen in July-September 2020.
Investment has been hit hard by falling demand, as well as strict lockdown measures implemented across much of China to contain the spread of COVID-19. The property market woes have also weighed on the country's economy, which narrowly escaped a contraction in the second quarter of 2020.
Authorities take steps to prop up the sector.
Relaxations on home purchases.
In an attempt to revive the ailing property market, the Chinese government has relaxed restrictions on home purchases in some cities. In Beijing, for instance, residents who already own one home are now allowed to buy a second one. This is a reversal of the previous policy which restricted residents to owning only one property.
Smaller down payments.
Another measure that has been introduced in order to stimulate demand is smaller down payments. For first-time buyers, the minimum down payment has been reduced from 30% to 20%. For second-time buyers, the minimum down payment has been reduced from 60% to 50%.
Cuts in mortgage interest rates.
In addition, mortgage interest rates have been cut in order to make borrowing more affordable. For first-time buyers, the interest rate has been reduced from 6.5% to 5%. For second-time buyers, the interest rate has been reduced from 7% to 5.5%.
A bigger reduction in the selling price of homes.
Finally, developers have been offered a bigger reduction in the selling price of homes in order to incentivize them to sell their properties at a lower price and thus stimulate demand.
Woes in China's residential property market are expected to deepen this year.
Home prices are expected to fall in 2022.
According to a recent report by real estate consultancy firm JLL, home prices in China are expected to fall by up to 10% in 2022, as the market continues to be weighed down by an oversupply of unsold homes and weak demand. This would mark the first time that prices have fallen on an annual basis since the global financial crisis in 2009.
Property sales are expected to drop faster than previously forecast.
Sales of new homes in China are expected to drop by 20% this year, according to a revised forecast by JLL. This is a sharp increase from the previous forecast of a 5-10% decline, and reflects the continued weakness in the market.