China Home Prices Continue to Decline Despite Government Stimulus

Home prices across major cities in China, the second largest economy in the world, continued to decline despite the government's constant efforts to control the slowdown.

Prices of newly-built homes declined 2.6 percent in 67 of the 70 major cities tracked by the National Bureau of Statistics in October. On a month-over-month basis, prices declined 0.8 percent marking the sixth consecutive drop. Average home prices fell 0.5 percent on a year-over-year basis.

Hangzhou saw the biggest drop among all cities on a year-over-year basis. Prices fell for the first time in two years in China's capital Beijing, declining 1.3 percent. Oversupply continues to be a huge problem and developers are trying to match their sale targets by lowering prices.

Bubble Fears

Experts expect prices to keep declining in China. The state of housing in the country has triggered off worries among investors around the world with many analysts hinting that China's asset bubble could threaten the health of the global economy.

It all began when home prices started accelerating a few years ago. The Chinese government introduced stringent measures like increasing stamp duty, taxes on properties and limiting the number of homes one could own to control the situation. Mortgages were also restrained.

As the strict measures sunk in, people bought lesser properties and today many developments stand deserted turning them into "ghost towns". Prices started falling this year and experts warned that a sharp decline could lead to a hard market crash.

Right on Track?

In September, prices were down in 69 of the 70 analyzed areas as opposed to the 67 in October, which shows a general deceleration in price slumps.

"Many cities have changed their mortgage policy, developers have stepped up launches of new projects to sell down inventories, and some homebuyers have come back to the market. Therefore the month-on-month decline narrowed," Liu Jianwei, a senior statistician at the Bureau was quoted by The South China Morning Post.

The government stepped in by lifting the property ban and mortgage restrictions when prices started falling this year. The administration aims to correct the property market and experts say that while the measures won't show an immediate effect, the market is on the right track.

"China's housing market is still on the way down in its correction," Bill Adams, senior international economist for PNC Financial Services Group told Reuters.

"Falling prices have led the government to cut mortgage rates and minimum down payment levels in late September for some home buyers, taking one of its biggest steps this year to boost an economy increasingly threatened by a sagging housing market, which directly impacts on about 40 other sectors of the economy," Adams explained.

Adams also added that a recovery ideally takes 5 to 7 years so the price deceleration could very well continue into the next year and the year after.