China’s property market woes are likely to worsen this year, with prices remaining flat and sales and investment falling further. At the same time, tighter and widespread COVID-19 curbs weigh on still weak demand despite more policy easing.

The property market, a pillar of the world’s second-largest economy, was weakened by government suppression of excessive borrowing from developers last year.

Since the beginning of this year, over 100 cities have taken steps to boost demand via cuts in mortgage rates, smaller down payments, and subsidies.

The outlook for the property market is expected to remain bleak in the first half of the year and for the whole of 2022.

Flattening home prices

China’s new home prices in April fell for the first time month-on-month since December, official data showed on Wednesday, depressed by strict COVID-19 lockdowns in many cities, despite more easing steps aimed at supporting demand.

Average new home prices in 70 major cities fell 0.2 per cent on a month-on-month basis, compared with zero growth in March, according to Reuters news agency calculations based on April data from the National Bureau of Statistics (NBS).

New home prices rose 0.7 per cent from a year earlier, the slowest pace since October 2015 and easing from a 1.5 per cent gain in March.

In April, 47 of 70 cities surveyed by the NBS reported new home prices falling from the previous month, compared with 38 cities recording a decline in March.

Last month, more than 40 cities took steps to stoke home buyers’ interest, including subsidies, cuts in mortgage rates and allowing more loans in provident housing funds.

“Conditions in China’s property sector continue deteriorating, with lockdowns and other Covid restrictions exacerbating the downturn,” says Logan H. Wright, partner and general director, China Markets Research, Rhodium Group. “The key problem remains the overall decline in sales and prices, which is creating an annualized shortfall in developers’ revenue of around 3%-4% of GDP compared with last year. Interest rate cuts may help at the margin, but only after the threat of lockdowns is lifted, and probably only in major cities as well.”

For demand, property sales are seen slumping 25.0 per cent in the first half, widening from a 14.0 per cent fall in February’s poll. Sales are expected to decline 10.0 per cent for the whole year.

Investment by real estate firms is expected to fall 5.0 per cent in the first half and drop 2.5 per cent for the whole year. Analysts previously forecast investment would drop 2.0 per cent in the first half and gain 1.5 per cent in 2022.