Chart Of The Week   October 22 2021

China’s Deteriorating Property Market

bearish Chinese property

Chinese new home prices fell on a month-on-month basis in September for the first time since April 2015. Prices of newly built homes in 70 Chinese cities declined 0.1% m/m on the back of a 0.2% m/m drop in third-tier cities. Moreover, property market weakness broadened: New home prices declined in just over half of the 70 cities in September – up from less than a third in August. The latest data reflects an ongoing trend as the monthly growth rate of new home prices peaked in May and has been steadily decelerating since then. According to NBS’s supplemental report on GDP, China’s real estate sector contracted by 1.6% y/y in Q3 while construction dropped 1.8% y/y.

Multiple forces are behind the deteriorating property market. Beijing has been tightening housing market policies since last summer in an effort to curb leverage in the real estate sector. Chinese developers are in crisis: Evergrande is on the brink of default while both Sinic and Fantasia Holdings have each defaulted on their bond payments recently. This is leading to a deterioration in consumer confidence and reducing interest from prospective buyers.

Although Chinese authorities are loosening restrictions on mortgages, our China Investment strategists do not view this as a signal of further significant easing. Given that efforts to contain the real estate sector’s leverage and home price inflation are structural in nature, Beijing is unlikely to reverse or significantly relax the regulatory crackdown. Thus, the property sector is unlikely to be used as a counter-cyclical policy support to the economy.