China Home Prices, Sales Slip Further in January, Report Shows

The Chinese real estate market continues to face headwinds, with home prices and sales slipping further in January, according to a report by the National Bureau of Statistics (NBS). The average new home price in 70 major cities fell by 0.3% year-on-year, marking the 13th consecutive month of decline. Existing home sales also dropped by 16.8% year-on-year, indicating a persistent weakness in the market.



The ongoing decline in the real estate market can be attributed to several factors, including:

1. Oversupply and High Inventory Levels: The rapid expansion of the real estate sector in previous years has led to a significant oversupply of properties, particularly in third and fourth-tier cities. As of 2024, the total value of unsold or unfinished homes in China is around 30 trillion yuan (4.1 trillion dollars), with more than 967 billion dollars needed to reduce the housing supply to pre-collapse levels. This oversupply has resulted in a decrease in demand, as buyers have more options to choose from, leading to a decline in prices (Source: Goldman Sachs).
2. Economic Slowdown and Unemployment: The slowdown in China's economic growth, coupled with rising unemployment rates, has reduced consumer confidence and purchasing power. This has led to a decrease in demand for real estate, as people are less likely to invest in properties when their financial security is uncertain. In 2024, the unemployment rate in China reached 3.8%, the highest level in over a decade (Source: National Bureau of Statistics of China).
3. Tightening Financial Policies: The Chinese government has implemented restrictive policies on real estate developers, limiting their debts according to the proportion of their assets. This has made it difficult for developers to obtain new financing and refinance their debts, leading to cash flow problems and a decrease in new construction projects. As a result, the annual investment in real estate development in 2022 decreased by 10.0% compared to the previous year (Source: National Bureau of Statistics of China).
4. Aging Population and Changing Lifestyles: The aging population in China, coupled with changing lifestyles and preferences, has led to a decrease in demand for traditional housing. Younger generations are increasingly opting for smaller, more affordable apartments or choosing to rent instead of buying. This shift in demand has contributed to the oversupply of properties and the decline in prices (Source: ICIS).
5. Distrust in the Real Estate Sector: The collapse of major real estate companies, such as Evergrande and Country Garden, has eroded public trust in the sector. Thousands of real estate projects have been halted or delayed, leading to a decrease in demand and a further decline in prices. In August 2023, Evergrande's shares plummeted 79%, and Country Garden reported a loss of US$6.7 billion in the first half of the same year (Source: Reuters).

To address the ongoing slump, the Chinese government has implemented various measures, such as mortgage interest rate reductions and affordable housing initiatives. However, the effectiveness of these policies remains to be seen, as the overall demand for real estate is still subdued.

In conclusion, the continued decline in Chinese home prices and sales highlights the challenges faced by the real estate sector. The government must address the underlying factors contributing to the market's weakness and consider additional measures to stimulate demand and support the broader economy.