China's rescue plan for property market not enough to reverse slump

Three months since China rolled out sweeping measures to rescue its beleaguered property market, the tide has yet to turn, with housing prices continuing to fall.

- Michelle Ng

Across 100 cities in China, prices of second-hand homes fell year on year from January to August, with August marking the 28th consecutive month of price decline, according to data from Beijing-based real estate research institute China Index Academy released on Sept 1.

In August alone, the average price of second-hand homes dropped by 0.71 per cent compared with July; it fell by 6.89 per cent compared with a year before.

August's new home prices nudged up by a sluggish 0.11 per cent from July, slowing from July's 0.13 per cent rise.

On May 17, Beijing announced a suite of measures, including reducing down payments, lowering mortgage rates and easing purchase requirements, in a bid to reverse the property slump, which is well into its third year now.

Economist Tommy Xie, who heads the Greater China research at OCBC Bank, said that while the measures may soften the slope of the property downturn, they are not enough to reverse the direction of the market.

"Current policies are unlikely to reboot demand immediately as buyer sentiment remains weak due to low income expectations and people cutting down on spending as their wealth decreases," said Mr Xie, noting that the property sector is still undergoing a rebalancing phase between supply and demand.

May's rescue measures included a push for local governments and state-owned enterprises to buy unsold homes and turn them into affordable housing. China had around 382 million sq m of unsold new homes in July, according to official data.

But the take-up has been slow, with only 24.7 billion yuan (S$4.54 billion) under a 500 billion yuan financing scheme being lent out, leading the People's Bank of China to say in August that it will accelerate the programme.