MNI: China House Prices To Bottom In Key Cities - Advisors

Home price declines in major Chinese cities appear to be bottoming and may receive near-term support from the traditional September-October sales peak, though a broad, sustained recovery could take one to three years, advisors and analysts told MNI.

Property sales per square meter, down 4.7% y/y as of August, may end the year about 5% lower, while new and existing home prices are likely to fall 2-4% from 2024 levels, said Lian Ping, director of the China Chief Economist Forum. He added prices are forming a bottom and that further 20-30% declines appear unlikely after four years of sharp adjustment.

Broad-based stabilisation remains unlikely in the near term given weak demand and divergent regional dynamics, but major cities could see temporary vibrancy during the peak season as rigid demand and seasonally increased supply will likely drive month-on-month sales growth, Lian noted.

Xie Yifeng, dean at the China Urban Real Estate Research Institute, expects stronger seasonal performance than in 2024 in core cities such as Beijing, Shanghai and Shenzhen, after authorities eased ownership caps in outlying areas and expanded loan support through the housing provident fund. But developers’ deep discounts to boost sales will cap price growth, he said. (See MNI: China's Major Cities To Ease Home Sale Rules Further)

New home prices in 70 key cities fell 0.3% m/m in August, the same pace as July, National Bureau of Statistics data showed. First-tier cities declined 0.1%, narrowing from the previous 0.2% fall, with Shanghai the only gainer (+0.4%) while the other three slipped as much as 0.4%.

INFLECTION POINT

The price downturn that began in September 2021 could reach a recovery inflection point between 2026 and 2028, as supply and demand may take another two to three years to rebalance under current economic conditions and policies, Xie said. Absent stronger central government stimulus, however, the recovery may be delayed, he warned, noting local-government measures remain limited.

Policymakers have discussed creating a special-purpose vehicle to absorb unsold housing using CNY500 billion in Ministry of Finance bonds and CNY5 trillion in targeted central bank facilities, MNI reported. But the likelihood of central government deployment in the near term remains low. (See MNI: China Bad Bank Calls Grow As Debt Overhang Saps Growth)

In the meantime, Lian did not rule out a 10 basis point reduction in the 5-year Loan Prime Rate in Q4, which would help lower mortgage rates still above 3% in major cities. “A further moderate reduction in mortgage levels should be affordable for banks, or policymakers could consider interest subsidies for certain buyers,” he said. 

FOREIGN ACCESS 

The State Administration of Foreign Exchange last week lifted restrictions on companies using capital-account FX income to buy non-self-use homes, while also facilitating home purchase payments for overseas individuals, saying speculative concerns had faded. 

The change will encourage foreign investment not only in housing, but also in offices and commercial property where inventory approaches 200 million square metres and the destocking cycle stretches beyond three years, Xie said. Foreign investors are likely to target high-quality assets in core cities that now offer better value after recent price declines, he added.

Yan Yuejin, vice president at the E-house China Research and Development Institution, said first-tier and strong tier-two cities will likely benefit most, driving demand for luxury projects such as large apartments and commercial villas.

Currently, local governments except Guangzhou have capped ownership at one home for eligible foreigners, Xie said, noting further purchase limit relaxations were possible.