China home price fall deepens despite policy support

China home price fall deepens despite policy support

BEIJING - China's home prices slumped an annual 2.6 per cent in October, shrugging off a range of government support measures in a nationwide downturn that threatens to stifle economic growth.

October's year on year price drop was the biggest since Reuters started calculating nationwide prices in 2011.

Falling prices will more than likely deter investors seeking capital gains, and most analysts now expect the housing market correction to continue in coming months as developers struggle with high inventory levels.

News of slowing foreign direct investment rubbed salt in the house price wound, with overseas investment down 1.2 per cent in the January-October period from a year earlier, with the fashionable service sector attracting $53.1 billion versus the modest $32.5 billion that flowed into once-rampant manufacturing businesses.

Despite moderating FDI growth, China has repeatedly said it expects its FDI to hit a record high of $120 billion this year, barring no sharp changes in global capital flows. [ID:nL3N0RH19G]

House prices in the capital Beijing dropped 1.3 per cent year on year - the first fall since October 2012.

"China's housing market is still on the way down in its correction," said Bill Adams, senior international economist for PNC Financial Services Group.

"Real estate corrections can persist for 5-7 years, meaning this slump in China is likely to persist into 2015 and 2016 at least."

Falling prices have led the government to cut mortgage rates and minimum downpayment levels in late September for some home buyers, taking one of its biggest steps this year to boost an economy increasingly threatened by a sagging housing market, which directly impacts on about 40 other sectors of the economy. 

New home prices fell month-on-month in 69 of the 70 major cities the National Bureau of Statistics monitors, unchanged from September. Year-on-year, home prices fell in 67 cities in October, up from 58 in September.

Liu Jianwei, senior statistician at the NBS, said recent policy relaxations may have boosted home buying interest as developers promoted sales to reduce inventories, pointing to the milder 0.8 per cent month-on-month price decline in October, versus a 1 per cent monthly fall in September.

(Home price figures published since January 2011 are not comparable with previous periods as the bureau introduced a new calculation method.)

Despite a range of stimulus measures unveiled since April, China's annual growth slowed to 7.3 per cent in the third quarter, the weakest since the global financial crisis.

The bad loan ratio at Chinese banks rose to 1.16 per cent at the end of September, up 0.09 percentage points from June, adding to concerns that the slow economy and cooling property market might hit banks and increase financial risks. 

Foreign direct investment into China reflected shifting patterns in global commerce. Among the 10 biggest investors into China, flows from South Korea expanded 26.4 per cent on an annual basis and from Britain surged 32.4 per cent.

In contrast, investment from Japan plunged 42.9 per cent from a year earlier while FDI from the United States fell 16.2 per cent and European Union dropped 23.8 per cent.

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