China’s May Home-Price Growth Slows Signaling Weaker Demand

China’s new-home prices fell in half the cities tracked by the government for the first time in two years as a slowing economy and excess supply deterred buyers.

Prices fell in 35 of the 70 cities last month from April, according to a statement by the National Bureau of Statistics today, the most since May 2012. In the financial center of Shanghai, prices decreased 0.3 percent from April, the first decline in two years, while they fell 0.2 percent in the southern business hub of Shenzhen.

“The property market obviously is worsening,” Yao Wei, a Hong Kong-based China economist at Societe Generale SA, said in a phone interview. “The tricky thing is that the further developers cut prices, the scarier buyers may feel. They are holding a wait-and-see position for further discounts.”

China’s property industry, facing a surplus of empty units, is placing in jeopardy Premier Li Keqiang’s mini-stimulus policies aimed at arresting a slowdown that threatens his 2014 growth target. While the central bank last month called on the nation’s biggest lenders to accelerate the granting of mortgages, the government has refrained from broad-based easing of property restrictions imposed over the last four years to rein in prices.

“Property remains the biggest macro risk in the near term,” Zhu Haibin, Hong Kong-based chief China economist at JPMorgan Chase & Co., wrote in a note to clients today. The real estate industry accounted for about a fifth of China’s gross domestic product and further softening will bring additional downside risks to the economic outlook, Zhu said.

Economic Risks

The eastern city of Hangzhou experienced the largest drop in May, with prices declining 1.4 percent from April. Prices were unchanged in Guangzhou last month, while they gained 0.2 percent in the capital city of Beijing, the data showed.

“The data highlights the weakening of the residential real estate market and the risk it poses to economic recovery,” Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong, said in an e-mailed note.

Home sales fell 11 percent last month from a year earlier, the statistics bureau reported last week, and private data also signaled the housing market is cooling. Prices fell for the first time on a monthly basis in May since June 2012, according to SouFun Holdings Ltd.

They rose 10.5 percent in 2013, the most in three years, according to SouFun, the nation’s biggest real estate website.

Stimulus Measures

New home-price gains in first-tier cities also slowed from a year earlier, rising 9.5 percent in Guangzhou and 8.7 percent in Shenzhen, the slowest paces since February last year. In Beijing, they jumped 7.7 percent, the weakest since March last year, and increased 9.6 percent in Shanghai, the least since April 2013.

The Shanghai Stock Exchange Property Index, which tracks 24 developers listed in the city, fell 0.2 percent at the close of trading, the smallest decline among the five industry groups on the benchmark, which fell 0.5 percent.

“Investors expect the government to introduce gradual stimulus measures or may start to ease curbs in the property sector to ensure their economic growth target is met,” Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu, said in a phone interview today.

Existing home prices fell 0.9 percent in Beijing in May from the previous month and dropped by 0.2 percent in Shanghai, according to the data.

Rising Vacancies

China’s housing vacancy ratio in urban areas was as high as 22.4 percent in 2013, Gan Li, director of Survey and Research Center for China Household Finance and a professor at Southwestern University of Finance and Economics, said earlier this month in the center’s research report.

Some developers are allowing buyers a longer time to pay the 30 percent minimum down payment, while some are even offering zero down payment, according to state media and statements by government agencies and developers.

China’s home prices will fall 5 percent this year as developers cut prices to meet sales targets amid a cooling market, Standard & Poor’s said last week.

Beijing, Shanghai, the country’s financial center, and the southern business hubs of Guangzhou and Shenzhen are considered first tier by the bureau of statistics.

— With assistance by Bonnie Cao

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