(Bloomberg) — China’s home prices fell at a faster pace in May, as the country’s tougher efforts to prop up the property market took time to revive demand.
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Prices of new homes in 70 cities, excluding state-subsidized housing, fell 0.71% from April, the most since October 2014, figures from the Office for National Statistics showed on Monday. Existing home values fell 1%, the sharpest decline since at least 2011 when China began using the current data collection method.
China unveiled a wide-ranging real estate rescue package last month to tackle the biggest cloud over China’s economy, easing mortgage rules and encouraging local governments to buy unsold homes. Three of the country’s biggest cities – Shanghai, Shenzhen and Guangzhou – have since implemented major easing for home buyers, lowering down-payment requirements and making room for cheaper mortgages. The capital Beijing has remained unmoved.
But investors and analysts remain skeptical that the measures will be enough because of the limited central bank funding disclosed so far and the slow progress of existing trial programs in some cities. The oversupply of housing has dragged down prices, giving people less reason to invest in property.
Weaker-than-expected house prices suggest the measures have yet to improve homebuyer confidence, said Raymond Cheng, head of China property research at CGS International Securities Hong Kong. He expects officials to urge local governments to speed up policy implementation.
The decline in prices also deepened from a year earlier. New home prices fell 4.3% and used home values fell 7.5%, the statistics bureau said.
A gauge of Chinese developer stocks fell as much as 2.4% in morning trading on Monday, extending further into a bear market and down 23% from its mid-May high.
Wall Street economists are predicting new measures and additional funding in Beijing’s bid to prop up the market, after top policymakers urged officials at a cabinet meeting earlier this month to keep an “open mind” on policies to reduce the housing inventory and be more “creative and bold” in the implementation of support measures.
JPMorgan Chase & Co. Property analyst Karl Chan expects further easing of restrictions on home purchases. Economists at HSBC Holdings Plc, including Jing Liu, predict more measures to destroy inventories. New steps are especially likely if the property market does not improve further in the coming months, according to Goldman Sachs Group Inc. economist Hui Shan.
Read BI’s reaction: China’s worst house price data since 2011, a bar to recovery
Funding for developers has remained tight since the government drew up a “white list” of property firms eligible for loans late last year. A broad measure of financing for developers, including loans, bonds and proceeds from home sales, continued to shrink sharply, down 24.3% from a year earlier, separate data showed on Monday.
Investors are not yet convinced that the housing slump has reached a tipping point for cash-strapped builders. Dexin China Holdings Co. last week it became the latest builder to be ordered into liquidation by a Hong Kong court.
A few green shoots emerged in May. Home sales improved 13.5% from April, the first notable increase this year, according to Bloomberg calculations based on figures for the first five months of the year.
However, market watchers differ on the outlook. Property sales in China are likely to bottom out in the next two to three months with the help of continued policy easing, especially as more progress has been made to reduce excess inventory, Wang Tao wrote in a recent note , UBS Group AG’s chief economist for China.
“Sales may improve further in June as support measures flow and developers increase sales for their interim results,” said Chen Wenjing, a researcher at property agency China Index Holdings. “But how quickly the property market can bottom out depends a lot on homebuyers’ view of their incomes.”
–With assistance from Jing Jin and James Mayger.
(Updated with more pricing details, analyst comments throughout.)
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