Chinese Real Estate Hits Record Lows: Consumer Confidence Plummets
Since its peak in the early 2000s, the Chinese real estate market has been experiencing a significant downturn. In fact, consumer confidence in the market has hit its lowest point in over a decade. This alarming trend has raised concerns about the overall state of the economy and has had far-reaching consequences for both homeowners and businesses.
The Decline in Real Estate Prices
In the country’s most developed cities, the price of existing homes has dropped by 6.3% in February compared to the same period last year. This marks the sharpest monthly decline since the government began publishing data in 2011. The widespread decrease in prices is a clear indicator that the real estate crisis in China is far from cooling down.
Impact on the Economy and Businesses
The prolonged real estate downturn has had a severe impact on the economy, causing significant damage and reducing the business activities of construction companies. This situation has also affected homeowners, burdening them with heavy debts as their main source of income, land sales, dwindles.
Government Interventions
To tackle the real estate issue, the Beijing government has implemented measures to stimulate the market. These include providing loans to struggling developers and making it easier for people to purchase homes. However, Zhaopeng Xing, a senior China strategist at ANZ, suggests that the latest decline might prompt the government to take even more aggressive actions.
Increase in Home Sales Amidst Falling Prices
Interestingly, while existing home prices have fallen, the number of sales has increased. This indicates that homeowners are willing to accept lower prices to sell their properties. According to a report from the E-House Shanghai Research Institute, the number of existing homes sold in major cities has risen by 96% in February compared to the same month last year, reaching a 20-month high.
The Effect on Consumer Confidence
The Chinese real estate market has experienced a prolonged boom, leading to developers taking on excessive debt and engaging in speculative activities. However, Beijing’s efforts to cool down the market in recent years have abruptly triggered a change. Banks, worried about the situation, have reduced credit for real estate companies, causing the current decline in prices.
The significant drop in housing prices has had a profound impact on domestic consumer confidence, as the middle class has long viewed real estate as a crucial investment channel. According to a survey by the National Bureau of Statistics, consumer confidence is currently at its lowest point in over a decade. Household savings reached a record $19.4 trillion USD in January.
Government and Bank Actions
The largest commercial banks in China have lowered the benchmark five-year lending rate to a new low of 3.95%. This reduction in rates, which exceeded expectations, demonstrates that state-owned banks are actively participating in the government’s efforts to simplify market regulations in the real estate sector. However, the central bank kept the key policy rate unchanged last week, making it unlikely that commercial banks will further reduce rates this month.
Across the country, prices of new homes have declined by 1.9% in February compared to the same period last year, following a 1.24% drop in January. The government has urged state-owned banks to increase lending to real estate developers listed in the “white list.”
According to WSJ