31 Aug 2022 | Lily Chen | 4 min read
Intro
China’s real estate market is rapidly changing, particularly from 2020 to 2022. Covid has made this market more challenging and complicated for both developers and customers. In 2020, the property market in China is the largest in the world and has 30% of global residential property shares.
You may start to wonder how is this property market performing in 2022 and what these trends mean to China’s economic system. In this article, we present you with updated trends in China real estate market.
China’s Property Market Top Trends: Falling Price and Home Sales
In April and May 2022, prices of new homes fell in more than half of 70 major cities in China. Because of the new Covid lockdown and other ongoing control measures in many cities and areas. The situation in the second-hand property market is even worse. 50 out of 70 major cities in China experienced a price fall. At the same time, new home transactions fall by 60% from April. This slump in China’s real estate market is first ever seen after 2016.
The data reported from 31 listed Chinese developers, with annual sales of at least $15 billion, shows that 26 developers are experiencing contracted sales declines of at least 50% year over year. The rest developers cited contracted sales fall of no lower than 28%.
To further present and analyse these trends happening in China property market, the Residential Property Price Index is important. Residential property price indices reflect how prices of residential properties are changing over a period and consider only market prices, excluding any other effects brought by property quality, locations etc.
From CEIC data, the property price indices of new constructed commodity residential properties in 70 major cities in China increased by 0.7% in April year on year. Compared to last month, this growth is slowing down. It is worth noticing that the pace of increasing price indices has been slower for 11 months, even with incentive policies from the government to reboot the real estate market including reducing interest rates for mortgages and providing subsidies. In April, the indices fell by 0.2% month on month for the first time in 2022, different from the flat rate in March.
Now, let’s take a close look into the behaviour of Shanghai, the most developed international city in China. Its property market is undoubtedly reflecting what is happening in the whole China market. In the last year from June 2021 to May 2022, there was a property price recovery in October 2021 accompanied by increasing property price indices before it ended in January 2022, followed by a price recession, especially after March 2022, when surging covid cases found leading to a lockdown in this city. This not only shocked the Shanghai economy but also further harmed the whole China property market.
China’s Property Market: Economic Factors
Even before the lockdown in Shanghai and restriction measures in other areas took place in 2022, China’s property market was in a slump. Financial activity restrictions to control covid cases in China, including closing port facilities in major cities such as Shen Zhen and Tian Jin, coexisted with Evergrande and other Chinese property developers debt crisis in 2021 hit the development of China’s real estate market.
Another economic factor preventing China’s property market from thriving is the zero-Covid strategy in China. China is now the only country that chooses to stick to the zero-Covid strategy, which means no local transmission of the covid-19 virus for more than two months.
This strategy comes at the great expense of economic growth. The growth rate of real GDP in China is expected to be 4.3% in 2022. This data is updated in June, which is 0.8% lower than predicted in December. This tells people that China’s economy is slowing in 2022.
China’s property market came into falter as a result because potential buyers are uncertain about the economic stability, losing interest to buy houses and potential investors are unconfident about the property market. China’s government has adopted actions to revive the real estate market. This is because properties and related industries contribute to approximately 25-30% of China’s GDP.
To save the property market from failing, the People’s Bank of China announced reductions in the interest rate of mortgages. For people who are buying their first home, the interest rate has decreased by 20 basis points. Now the minimum interest rate reached 4.4% for buying a first home.
from https://www.theglobaleconomy.com/China/lending_interest_rate/
The government is also releasing signals to loosen other policies to regain investor confidence. China’s central bank is easing the “three redline policy” for the property sector. Three redline policy refers to loan borrowing limits set for real estate developers, introduced in 2020, aiming to regulate developers in the overheated property market. This policy pushed the debt crisis of many developers as banks are less willing to lend money to them. Now, the regulation department in some areas is considering continuing to provide loans for developers who failed three red lines on the premise that current indices are maintained without rising for six months.
Conclusion
The property market in China is going through a slump, with prices falling and the number of transactions decreasing. However, the government has been taking measures to try and revive the market, such as issuing new policies and adjusting old ones. We still see lots of positive possibilities in China’s real estate market and the economic growth in this fast-developing country.
Staying tuned for the latest trends happening to China property market for developers and investors is essential. If you are interested in gaining more insight into China’s current real estate situation or want to enter this rapidly changing market yourself. Feel free to contact us for more information and advice here!