Global Impact: China turns up the heat on its property sector as economy slowly rebuilds

Global Impact is a weekly curated newsletter featuring a news topic originating in China with a significant macro impact for our newsreaders around the world

In this edition, we examine the outlook for China’s property sector after the average new home price in China remained unchanged in January having fallen for 16 straight months

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The average price of newly completed homes rose last month in 36 of the 70 cities tracked, more than double the 15 recorded in December. Photo: EPA-EFE

Published: 2:15pm, 20 Feb 2023

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China’s residential property market defied gravity in the first month of 2023, as more urban centres across the country reported rising prices than declines, auguring well for an economy that is still trying to regain its growth momentum after climbing out of a post-coronavirus slump.

The average price of newly completed homes rose last month in 36 of the 70 cities tracked, more than double the 15 recorded in December. Falling prices were noted in 33 cities last month, compared with 55 in December.

The price of second-hand homes rose in 13 cities last month, compared with seven in December.

The official statistics added together to illustrate an economy that is clawing its way out of a slump, but the world’s largest property market still has long way to go before returning to its previous dizzying heights, as rising unemployment in the technology sector keeps a lid on prices and sales.

In fact, transactions are likely to shrink this year, according to the international credit rating agency Moody’s Investors Service. That will exacerbate the debt pressure on local government authorities and weaker banks, Moody’s said.

A prolonged fall in home sales and prices could have serious consequences for local government financing vehicles. That would add pressure on local governments, which saw debts jump by 15 per cent to 35 trillion yuan (US$5.11 trillion) last year.

How did China’s home market get here, after surpassing the United States in 2017 as the world’s largest with US$1.7 trillion in sales?

The answer can be traced back to October 2016 during China’s week-long National Day public holiday, traditionally the peak season for property sales. During that year’s so-called silver October, 21 different city authorities - from first-tier cities like Beijing and Shanghai, to provincial capitals like Nanning and Jinan - unveiled a litany of policies over the course of a week to pour cold water on runaway property prices.