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China's May property sales suffer biggest dip since Oct 2017

Slowdown is in line with weaker factory activity and producer price growth in May, pressurising Beijing for more stimulus

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Real estate investment, mainly focused on the residential sector but also including commercial and office space, is a major gauge of growth in China.

Beijing

CHINA'S property investment growth cooled in May and sales saw their biggest decline since October 2017, suggesting that the frothy housing market may not be able to cushion the effects of a slumping manufacturing sector and intensifying trade tensions.

Real estate investment, mainly focused on the residential sector but also including commercial and office space, is a major gauge of growth in the world's second-largest economy.

China's property market has seen a recent resurgence as some local governments eased home purchase rules to boost economic activity, while Beijing's call for banks to ramp up lending and lower interest rates has also helped boost investor confidence.

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But the picture is very uneven, and some analysts cautioned that such a rebound might be difficult to sustain as broader economic growth slows and official property market curbs are expected to remain in place in most cities.

A slowdown has been felt deeply in many provincial cities after the real estate market suffered a downturn in late 2018.

Price cuts offered by developers have led to protests by angry buyers, making authorities wary of the risk of social unrest.

Property investment in May grew 9.5 per cent from a year earlier, easing from a 12 per cent gain in April and marking its slowest pace since December, according to Reuters calculation based on National Bureau of Statistics (NBS) data.

It rose 11.2 per cent year on year for the first five months, compared with a 10.2 per cent increase in the same period in 2018 and 11.9 per cent in January-April this year.

The slowdown was in line with weaker factory activity and producer price growth in May, adding pressure on Beijing to roll out more stimulus measures to cope with a waning economy and rising trade frictions with the United States.

Property sales by floor area - a key indicator of demand - dropped 5.5 per cent in May from a year earlier, compared with a 1.3 per cent rise in April.

May's decline was the biggest since October 2017, when sales fell 6 per cent, according to Reuters calculations. For the first five months, sales fell 1.6 per cent, following a 0.3 per cent decline in January- April.

"The slowdown in the real estate sector is concerning. We really need to keep an eye on its negative impact on growth," economists at ANZ said in a note to clients, trimming its gross domestic product forecasts for China.

Some developers have sought to promote sales by cutting prices, which has also raised alarm. The Chinese city of Enshi tried to stabilise house prices by urging developers to halt drastic price cuts, threatening punishing measures unless such "wrong behaviours" stopped.

Funds raised by China's property developers grew 7.6 per cent year on year in January-May, lower than an 8.9 per cent increase in the first four months, official data showed, suggesting that their financing pressures may be rising again after looser credit conditions earlier this year helped alleviate some pains for the debt-laden developers.

Foreign investment in China's housing sector rose 38.8 per cent in the first five months, slowing from a 103.7 per cent surge in January-April, as Beijing remained wary of overseas money flowing into the heated market.

New construction starts measured by floor area also slowed, rising 4 per cent on-year in May, versus a 15.5 per cent gain in the preceding month, according to Reuters calculations. For January-May, new construction starts rose 10.5 per cent versus a 13.1 per cent increase in January- April. REUTERS