New housing prices in China decreased by 0.1% in August, similar to the declines recorded in previous months, namely June and July. This situation reflects a sustained weakness in the housing market and the economy's inability to generate momentum from domestic demand.
Impact on Domestic Demand
The ongoing weakness in this sector means that the housing market continues to exert pressure on the economy, hindering the increase in domestic consumption and reducing the revenues of local governments, unless policymakers take strong measures to revive this sector.
According to calculations, prices have decreased by 3.0% year-on-year, which is less than the 3.2% decline in July, indicating that the downward trend in prices is slowing. Zhang Dawei, a senior analyst at Centraline Property, stated that the annual decline in prices in cities continues, and it seems the market has passed its worst condition.
Government Measures and Market Status
However, Zhang predicted that a widespread recovery in the short term is unlikely, relating to the seasonal decline that is typical at this time of year. Meanwhile, housing prices in major cities (Tier 1 cities) increased by 0.1% in August, while Tier 2 and Tier 3 cities faced declines.
The government took measures last month to guide developers towards new financing models and prevent buyer protests. These actions are designed to strengthen buyer confidence and create a less risky financing model for long-term housing development. However, analysts believe that these measures will not have a significant impact on housing demand in the short term.
Meanwhile, property sales, investment, and construction starts have decreased in the first eight months of the year, and household loans, including mortgages, fell by 202.9 billion yuan (30.2 billion dollars) in August, indicating a reluctance among households to borrow. Economic growth in the second quarter has dropped to 4.3%, and the economy of the world's second-largest country remains heavily reliant on foreign demand to compensate for weak domestic consumption.
Shina Yuy, a senior economist at Oxford Economics, has predicted that the housing recession will continue until the end of the current five-year plan, and investment in the housing sector will not improve until 2031. She emphasized that the need for more active political responses to revive domestic demand is increasingly felt every day.
