In September new home prices across 70 cities in China fell for the first time in six years.
The drop of 0.08% is more significant than the absolute number seems because China counts on property-related industries for almost a quarter of its GDP.
And because real estate is a primary source of budget cash for local governments.
The timing is troubling. September is traditionally a peak season for the China’s new home market. Yet residential sales tumbled 17% year over year in the month, investments slid for the first time since early 2020, and the rate of failed land auctions climbed to the highest since at least 2018–a big threat to local government spending.
Smaller cities, where the economy is weaker, were hit the most by last month’s price declines. Existing-home values slid 0.21% in 35 so-called tier-3 cities, the most since early 2015, National Bureau of Statistics figures showed Wednesday.
The downward pressure on prices looks to intensify in coming months as landlords and developers who have tried to tough out the slump give up the battle. Prospective buyers have been left wondering if cash-strapped builders can deliver their apartments. Evergrande alone owes more than $300 billion, and has yet to finish homes for 1.6 million buyers who put down deposits.
The downturn has continued into October. Sales of existing homes plunged 63% from a year earlier in the first 17 days of October, according to a Nomura Holdings.
“Now the priority is to prevent a state of panic,” Yan Yuejin, research director at Shanghai-based E-house China Research and Development Institute, told Bloomberg. “The home market has clearly entered a downward cycle.”
So far it looks like GDP growth in China will remain above the target of 6% announced by China’s Premier Li Keqiang in March.
Many government officials, however are still clinging to targets of 8% or better. People’s Bank of China Governor Yi Gang recently said he sees about 8% expansion for this year.
But Goldman Sachs recent cut its forecast for China’s GDP Growth to 5.2% for 2022.
The real danger from slowing growth in China, however, is not to China’s economy itself, but to economies in the developing world that are dependent on high commodity prices such as Chile, Peru, Brazil, and South Africa–and developed economies such as Australia. A slowing Chinese economy would also hit the economies of Malaysia, Singapore, and Thailand that do large amounts of sub-assembly work for China’s export industries.
