Home prices in China fell in December, closing out a difficult year for the real estate sector, which is struggling with a deepening debt crisis. According to official data, prices of new homes in 70 cities declined by 0.37% month-on-month compared with November, following a 0.39% drop in the previous month. Resale home prices fell by 0.7%, the steepest decline in 15 months.
China’s real estate sector has faced ongoing challenges for more than four years due to the debt crisis that has weakened major developers. China Vanke, formerly the country’s largest property developer, is negotiating with bondholders to avoid the risk of default, while Jingrui Holdings was recently liquidated in Hong Kong.
Calls for More Decisive Action
Lu Ting, Chief China Economist at Nomura, said in a recent note that Beijing cannot afford to allow the real estate sector to continue shrinking indefinitely, stressing the importance of taking more decisive steps to achieve real stability in the property market and the broader economy.
Last month, Chinese leaders reaffirmed their commitment to strengthening policy support for the housing market, with a focus on encouraging the purchase of existing housing inventory to reduce oversupply.
Meanwhile, policymakers are considering additional options, including providing mortgage subsidies to support first-time homebuyers, according to people familiar with the matter in November.
Bleak Outlook for Prices and the Banking Sector
John Lam, Head of China Property Research at UBS, expects home prices to continue falling for at least another two years, noting that the value of second-hand homes in major cities has dropped by more than one-third from its peak.
Fitch Ratings also warned in October that new home sales by floor area could decline by a further 15% to 20% before the sector stabilizes, adding that non-performing loans linked to real estate will remain at elevated levels next year.
