China property slump deepens as home prices fall for second month

An intensifying home market downturn is spurring more concerns about China's economic growth. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's home slump deepened in October as declines in prices, sales and property investments widened, adding pressure on authorities to stabilise the market.

New-home prices in 70 cities slid 0.25 per cent last month from September, when they fell for the first time in six years, National Bureau of Statistics figures showed on Monday (Nov 15). Residential sales dropped 24 per cent from a year earlier, the most since last year, striking a blow for developers during what is traditionally a busy season, Bloomberg calculations based on official data showed.

The figures may add to speculation that regulators will consider easing their clampdown on leverage in the real estate industry as the property downturn risks derailing China's economic recovery. A liquidity crisis at industry giant China Evergrande Group is spreading to its competitors, which are struggling to refinance their debts, particularly in the offshore junk dollar bond market.

"The slowdown in the property sector is the key risk for the macro outlook in the next few quarters," Zhiwei Zhang, chief economist at Pinpoint Asset Management, wrote in a note.

Falling prices may dissuade homebuyers concerned about the value of their assets, making it harder for developers to sell properties and generate much-needed cash. Last month's drop in prices, which excludes state-subsidised housing, deepened from 0.08 per cent in September. Home values in the secondary market fell 0.32 per cent, the largest decline since February 2015.

Property firms refrained from expenditure, resulting in a widening 5.4 per cent year-on-year contraction in real estate development investments, according to Bloomberg calculations. New starts by developers, a leading indicator of investments, plunged 33 per cent from a year earlier, and their land purchases shrank 24 per cent from September.

Stock and bond markets diverged on Monday morning, as investors digested the news of a deeper property slowdown and the prospect of potential policy easing.

Shares of Chinese developers fell, with the CSI Real Estate Index sliding as much as 3 per cent. Chinese junk dollar bonds rose, continuing a rally that began late last week after a series of articles published in state media signaled support measures are on the way to help developers tap debt markets.

Prevent Bubbles

Still, China's banking regulator is sticking to its deleveraging line, saying late on Friday that the government will continue to curb the "financialization of real estate" and prevent bubbles in the sector. It will maintain stable prices of land and housing, the China Banking and Insurance Regulatory Commission said.

Other figures released on Monday pointed to the economy stabilising in October. Retail sales and industrial output beat estimates, and the jobless rate was steady.

"The government would want to limit the negative impact on the economy and financial sector from a sharp property downturn," UBS Group economists led by Wang Tao wrote in a note last week. But the bank warned not expect a wholesale property easing like the batch offered during an earlier slump in 2015-2016.

The Federal Reserve warned last week that fragility in China's real estate sector could spread to the United States if it deteriorates dramatically. Bank of America and Citigroup warned that China's expansion for this year may miss the 8.2 per cent anticipated by economists, and that the slump could last into next year, dragging growth below 5 per cent.

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