China's new home prices suffer biggest month-on-month decline in 6 years

[BEIJING] China's property market suffered more headwinds in November, with home prices, sales, investment and construction all falling, weighed by weak demand and a cash crunch among developers.

New home prices fell 0.3 per cent month-on-month in November, the biggest decline since February 2015, according to Reuters calculations based on data released by the National Bureau of Statistics (NBS) on Wednesday.

That was worse than the 0.2 per cent drop in October.

Only nine of 70 cities tracked by NBS saw monthly price gains in November, the fewest since February 2015, according to Reuters calculations.

In a separate NBS statement, home sales by value slumped 16.31 per cent in their fifth month of declines, pointing to gloomy demand despite measures taken by some cities to boost transactions.

"Cities of all classes are under pressure," said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution.

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"The current scale of market supply is large and demand is weak. The key is to accelerate inventory de-stocking to stabilise home prices." China's property sector has been grappling with tighter regulations this year, including curbs on bank lending and limits on how much property developers can borrow amid growing financial woes.

Last week, China Evergrande Group and another major developer Kaisa missed payment deadlines on their offshore bonds, prompting Fitch to downgrade the companies to "restricted default" status.

New home prices have dropped in 64 of 70 cities so far this year, according to Reuters calculations.

For the supply side, new construction starts as measured by floor area tumbled 21.03 per cent on year in November, down for the eighth month, while property investment by developers fell 4.3 per cent.

"Due to the dual impact from the cyclical slowdown and (government) policies, coupled with the debt crises at some developers, the property shock is yet to pass, but with a good policy response, systemic risks can be avoided," said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

China's top leaders said "houses are for living in, not for speculation" during an agenda-setting meeting on Friday. They also pledged to promote the healthy development of the property market and better meet the reasonable demand of home buyers.

"The Central Economic Work Conference has set the tone of stabilising growth for next year, so we believe that as government policy kicks in, economic growth in the fourth quarter and first quarter of next year would bottom out and rebound," Zhang said.

At least six cities have introduced measures to boost home purchases since November, including providing subsidies or deed tax reductions, local media has reported.

Unsold housing stock in China's 100 biggest cities rose to the highest level in five years in November, according to a private sector survey last Friday.

New home prices dropped 0.4 per cent month-on-month in tier-two cities and 0.3 per cent in tier-three and four cities, compared with zero growth in tier-one cities last month.

S&P ratings agency expects the property downturn to persist on the back of credit tightening and restrictive policies in the sector, potentially leading to a 10 per cent decline in nationwide residential sales next year.

REUTERS