China's Home Prices Plunge: A 9-Year Low Amidst Sector Struggles

China's home prices fell sharply in August, marking the steepest decline in over nine years, as government measures failed to revive the ailing property sector. The market is facing significant challenges such as indebted developers and declining buyer confidence, threatening to derail economic growth targets for 2023.

China's new home prices fell at the fastest pace in more than nine years in August, official data revealed on Saturday, as supportive measures failed to spur a meaningful recovery in the property sector. New home prices were down 5.3% from a year earlier, the quickest decline since May 2015, compared to a 4.9% drop in July, according to Reuters calculations based on National Bureau of Statistics (NBS) data.

In monthly terms, new home prices fell for the fourteenth straight month, decreasing by 0.7%, consistent with July's dip. The property market continues to struggle with heavily indebted developers, unfinished apartments, and diminishing buyer confidence, straining the financial system and endangering the 5% economic growth target for the year.

A Reuters poll forecasted that China's home prices will drop by 8.5% in 2024, and by 3.9% in 2025, as the sector strives to stabilize. China's property market is still in the gradual recovery phase as home buyers' demand, income, and confidence take time to rebound, said Zhang Dawei, chief analyst at property agency Centaline.

"The market is looking forward to stronger policy." Property investment fell 10.2% and home sales plummeted 18.0% year-on-year in the first eight months, as per official data also released on Saturday.

Chinese policymakers have ramped up efforts to support the sector, including reducing mortgage rates and lowering home buying costs, partially revitalizing demand in major cities. Smaller cities, facing fewer home purchase restrictions and high levels of unsold inventory, are particularly vulnerable, highlighting the challenges faced by authorities to balance demand and supply across various regions.

Of the 70 cities surveyed by NBS, only two reported home price gains both monthly and annually in August. "With worsening growth slowdown under new headwinds in H2, we expect Beijing will eventually have to serve as the builder of last resort by directly funding delayed residential projects that have been pre-sold," noted Nomura in a research report on Friday.

China may cut interest rates on over $5 trillion in outstanding mortgages as early as this month, according to Bloomberg News. To support mortgage rate cuts, a five-year Loan Prime Rate cut is likely in September, complemented by a 20 basis point cut of the medium-term lending facility (MLF) and a 50 basis point reduction in the reserve requirement ratio (RRR), economists at ANZ asserted in a research note on Friday.

(With inputs from agencies.)