China Home Prices Fall at Slower Pace as Stimulus Takes Hold

China's real estate market, which has been grappling with a prolonged slump, is showing signs of stabilization as a series of policy measures aimed at addressing the downturn begin to take effect. According to data from the National Bureau of Statistics, the decline in the prices of commercial residential homes in the country's 70 large and medium-sized cities narrowed on a year-on-year basis in November. This trend suggests that the market is bottoming out after three years of adjustment.



The shift in market sentiment is palpable on the ground, with real estate brokers and homebuyers sensing a market recovery earlier than expected. Huo Peng, a manager at an office of China's major real estate chain, Lianjia, in Beijing's Chaoyang District, noted that brokers now update information for clients every two days instead of weekly due to adapting to a fast-paced market.

The policy package implemented in 2024 has been rolled out in droves, with adjustments made across areas such as mortgage rates, transaction taxes, down payment ratios, and both supply and demand sides. Key policy measures include:

1. Mortgage Rate Reductions: In late September, the People's Bank of China and the National Financial Regulatory Administration rolled out a wave of policies to stabilize the real estate market, including reducing mortgage rates for first homes, second homes, and more by at least 30 basis points below the loan prime rate (LPR) by October 31, 2024.
2. Down Payment Ratio Adjustments: On May 17, 2024, the People's Bank of China (PBOC) and the National Financial Regulatory Administration announced that the minimum down payment ratio for individuals' commercial housing mortgages was lowered to 15 percent for first-home purchases. This was later extended to second-home purchases in September.
3. Tax Optimization Policies: On November 13, 2024, the Ministry of Finance, the State Tax Administration, and the Ministry of Housing and Urban-Rural Development jointly released a set of tax optimization policies related to real estate, covering deed tax, value-added tax (VAT), and land value-added tax. These policies aimed to lower the tax burden on homebuyers and stimulate demand.

These policy measures, along with the relaxation of home purchase restrictions in many cities, have contributed to a more positive homebuyer sentiment and an increase in transactions. In October 2024, real estate market activity improved, with several indicators showing year-on-year growth after a prolonged period of declines. Real estate transactions in China's first-tier cities – Beijing, Shanghai, Guangzhou, and Shenzhen – showed marked growth, with online new home sales up 14.1 percent year-on-year and second-hand home sales rising by 47.3 percent.



However, while the market is showing signs of stabilization, it is still too early to declare a full-blown recovery. The pent-up housing demand from the past three years is being released, market analysts said, as the positive impact of the government's economic stimulus policies continues to lower home-buying costs and accelerate buyer enthusiasm. Nevertheless, investors' pricing expectations are likely to rise in response to the improving market sentiment, which may result in further downward pressure on transaction volume in a market that is already relatively stagnant.

In conclusion, China's real estate market is showing signs of stabilization and uptick as a series of policy measures aimed at addressing the yearslong slump begin to take effect. The decline in home prices has narrowed, and market sentiment has improved, with real estate transactions in major cities increasing. However, it is still too early to declare a full-blown recovery, and investors should remain cautious as the market continues to evolve.