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 The 0.2 percent monthly price drop in May, though slight, follows
data last week that showed growth in property investment slowed
while property sales and new construction tumbled, compounding the
challenges for leaders in Beijing as they deal with an economic
growth slowdown.
The real estate sector, which accounts for more than 15 percent of
China's economic output and directly impacts around 40 other
business sectors, could determine the severity of that downturn.
"If the cooling-off in real estate continues, the authorities will
need to make more effort to manage the slowdown in the broad
economy," said Lv Fengyong, a researcher at the Chinese Academy of
Social Sciences (CASS), a government think-tank in Beijing.
Analysts said large inventories of unsold homes and recent sluggish
sales are likely to trigger wider and deeper price cuts in coming
months, as developers act to maintain cash flow. However, they said
evidence of a sharp correction in home prices remains thin, putting
to rest for now at least fears of a hard landing in the wider
economy.
"The high inventories in some cities and developers' recent
promotions, together with unclear market expectations that kept
buyers staying on the sidelines, led the prices to fall," Liu
Jianwei, a senior statistician at the National Bureau of Statistics
(NBS), said in a statement accompanying the data on Wednesday.
New home prices fell in May from April in 35 of the 70 cities
polled, up from eight cities in April. (For table with more price
data, see)
Versus a year ago, new home prices rose 5.6 percent in May, easing
from the previous month's 6.7 percent rise and the slowest annual
rise in 13 months.
The worst year-on-year performance was in the eastern city of
Wenzhou, where prices fell 4.4 percent in May.
A recent private survey showing China's vacancy rates were around 22
percent suggest a considerable overhang of inventory, which could
undermine property as an investment class and add momentum to price
declines. With its stock markets in a prolonged slump, property has
been one of the few investments in China to offer attractive
returns.
Moody's Investors Service last month cut its outlook for China's
property industry to negative from stable, noting expectations of a
slowdown in sales growth and a large supply overhang in the market.
"The risk of a more persistent and sharper downturn in the property
sector is now the biggest risk facing China’s economy in 2014 and
2015," Wang Tao, an economist at UBS Bank, said in a note.
HOW LONG WILL WEAKNESS LAST?
After a strong performance in 2013, China's real estate market has
softened. Sales have slowed and banks have become increasingly
cautious about lending to developers and home-buyers.
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Month-on-month falls were seen in some major cities, including
Shanghai and Shenzhen, which saw home prices drop 0.3 percent and
0.2 percent respectively, the NBS data showed.
Existing-home prices also dropped month-on-month in 35 cities in
May, compared with 22 in April.
Analysts said a moderate adjustment in the property market will be
welcomed by the government, which has spent more than four years
trying to tame record housing prices amid fears of an asset bubble.
But any signs of a more serious slowdown in the property market
could indicate more policy support may be needed to head off risks
to the banking sector and balance the world's second-largest
economy.
"We are not concerned about the likelihood of housing price collapse
in China as the current turn is just a rational market adjustment,"
said He Qi, deputy secretary-general of China Real Estate
Association.
"Housing demand remains solid in China as most Chinese still view
property as one of the best investment options."
Property shares slipped after the price data, with the Shanghai
property sub-index down 0.5 percent.
Recent policy tweaks at local level and government efforts to speed
up lending may help the market from sliding further.
Many Chinese local governments, which badly need proceeds from land
sales to pay maturing debts, have eased home-buying restrictions and
made it easier in recent months for buyers to borrow from local
housing provident funds.
(Editing by Eric Meijer)
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