China Home Prices Fall in Most Cities on Weak Demand

China’s new-home prices fell in July in almost all cities that the government tracks as tight mortgage lending deterred buyers even as local governments eased property curbs.

Prices fell in 64 of the 70 cities last month from June, the National Bureau of Statistics said today, the most since January 2011 when the government changed the way it compiles the data. Beijing prices fell 1 percent from June, posting the first monthly decline since April 2012.

“The falling trend of China’s property market has no sign of improving,” Shen Jian-guang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd., said in a phone interview today. “The key issue is the mortgages, despite all types of local government easings. The high rate is damping sentiment of owner occupiers.”

China’s property market has become a drag on the world’s second-biggest economy, prompting cities to start easing local curbs in June. Thirty-six cities had loosened measures as of the end of last week, according to Centaline Property Agency Ltd., while developers have cut prices since March to lure buyers. The International Monetary Fund has urged China to target slower expansion in 2015, saying the economy faces a “web of vulnerabilities” from rising debt and financial institutions’ exposure to real estate.

First-home buyers no longer received mortgage-rate discounts this year. In Beijing and Shanghai, first-home mortgage rates were the same as the benchmark rate in July, while in Guangzhou they were 5 percent to 10 percent higher than the benchmark rate, according to Centaline.

Maintaining Growth

Today’s housing data adds to the latest signs that the economy is weakening, making it tougher for Premier Li Keqiang to sustain the fastest growth in the Group of 20 nations. Foreign direct investment fell 17 percent in July from last year, according to separate data from Ministry of Commerce today. The broadest measure of new credit plunged to the lowest since the global financial crisis and industrial output unexpectedly slowed, the statistics bureau reported last week.

Prices in Shanghai decreased 1.2 percent and dropped 1.3 percent in Guangzhou, both the biggest slide since the data began. The eastern city of Hangzhou and the southern tropical city of Sanya had the largest declines in July, each dropping 2.4 percent.

Private data also has been signaling that the housing market is slowing. Prices fell for the third straight month in July, according to SouFun Holdings Ltd., the nation’s biggest real estate website.

Worse Times

Worse times for China’s real estate sector are still ahead, wrote Standard Chartered Plc economists led by Lan Shen in an Aug. 6 report, after surveying managers of 30 Chinese developers in six cities. Developers are offering “moderate discounts,” while buyers are still very cautious regardless of how much developers cut prices, Standard Chartered found.

The southeastern city of Xiamen and the southwestern city of Dali were the only two places where prices gained in July from June, adding 0.2 percent and 0.1 percent respectively.

“It is almost impossible for home prices to rise in the second half,” Tan Huajie, board secretary of China Vanke Co., the nation’s biggest developer, said in Hong Kong today, citing high inventory. “Home sales should improve a bit, while prices will stabilize in the next half.”

‘Steep Correction’

New-home price gains also slowed from a year earlier. They rose 5.2 percent in Guangzhou, increased 5.1 percent in Shenzhen and jumped 4 percent in Beijing, all the slowest pace since January last year. Prices advanced 4.1 percent in Shanghai, the least since February 2013.

“It’s still uncertain where the housing market will go in the next two months,” Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG, told Bloomberg Television today. “But at least the downward trend on housing transactions may not continue because of seasonality as well as because of the supporting measures.”

The Shanghai Stock Exchange Property Index, which tracks 24 developers listed on the city’s exchange, rose 0.3 percent at the close of trading, while the benchmark added 0.6 percent.

Both the official and private data point “to a steep correction in residential real estate prices whose depth begins to match that in the Lehman crisis,” Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong, said in an e-mailed note. “We expect new measures to stimulate the economy in a targeted way to be announced in the near term.”

Existing-home prices declined 0.8 percent in Beijing in July from a month earlier and dropped 0.9 percent in Shanghai, according to the data.

Home sales fell 28 percent in July, the biggest monthly drop this year, the government reported earlier this month.

— With assistance by Bonnie Cao

Before it's here, it's on the Bloomberg Terminal.