China's prices of old and new homes narrowed their declines in January

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March 9, 2022 10:34 AM SGT

The prices of lived-in homes and newly completed property continued their declines last month in China, underscoring the efforts needed to resuscitate one of the most important sectors in the world's second-largest economy after nearly six years of clampdowns.

The price index of new homes fell by 0.04 per cent in January across 70 cities tracked by the National Bureau of Statistics, narrowing from the 0.2 per cent drop in December. In the secondary market, the price index of lived-in homes contracted by 0.3 per cent last month, compared with 0.4 per cent in December.

The latest data puts any prospect of a recovery to mid-2022, as banks and developers work under the close scrutiny of local authorities to relax some of the regulations around mortgage financing, land purchases and the use of property sales proceeds for refinancing debt.

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"Hot cities, the primary market in some areas and the secondary market will see clear upwards trends" around the middle of the year, said Li Yujia, senior economist at the Guangdong Urban and Rural Planning and Design Institute, a policy advisory body.

Residential buildings in Beijing on January 13, 2021. Photo: Reuters. alt=Residential buildings in Beijing on January 13, 2021. Photo: Reuters.>

China's housing market is likely to bottom out this year, as the overall economic policy is aimed at ensuring stability, starting with tier-one cities, Li said. Top-tier cities will widen their leads over lower-tier cities for population and capital flows.

Some embers of a revival may be seen in tier-one cities, where the sales price of new homes rose 0.6 per cent last month, reversing the 0.1 per cent contraction in December. Out of the 70 cities tracked by the statistics bureau, 39 recorded declines in January, 11 fewer than in December.

"The performance of home prices looked much better in January than what we and the market expected," said Raymond Cheng, managing director at CGS-CIMB Securities.

Still, the slight uptick took time to translate into sales for developers. The country's top 100 listed developers reported a collective 40 per cent slump in their January sales, which means that the overall industry was still in decline last month, Cheng said.

Since the inventory of new houses in hot cities is not large, many at only six to seven months of inventory, when the primary market rebounds and is expected to rise, extra demand will spill into secondary market, Li added.

Ironically, the market thought a possible bottoming out of the property market was bad news for the overall stock market, as it removed the pressure for regulators to aggressively ease policies any further, CGS-CIMB Securities' Cheng said.

China's property stocks such as China Vanke, Shimao Group Holdings and Kaisa Group Holdings collectively fell in the Hong Kong market.

"Share prices for the sector are expected to be very volatile in near future, especially for news related to developers' liquidity problem and their upcoming results, which may miss market expectation," added Cheng.

"The market reacted negatively today to this set of figures because it may suggest that home prices in China have been stabilised and regulators do not need to implement more aggressive measures to reverse the trend," Cheng said. But "it is too early to have such a conclusion" and observation on the coming transaction volume is needed, he added.

"The data in January gave out a positive signal," said Yan Yuejin, research director at Shanghai-based E-house China Research and Development Institute.

After the policy adjustment in the fourth quarter of last year, especially the financial and credit policy, the excessively rapid decline in housing prices has begun narrowing, said Yan.

Recently, some cities have reduced the down payment ratio, which shows that the current housing loan policy continues to be relaxed. It could also lower the threshold for buying a house, stimulating market transactions.

Prices will then narrow declines as market trading recovers. Market fundamentals may further improve, added Yan.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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