China's new home prices fall at fastest pace in 11 months

China's new home prices experienced their fastest monthly decline in 11 months in September, falling 0.4% month-on-month and 2.2% year-on-year, signaling a deepening property market slump. This widespread weakness, affecting most cities and contributing to slower Q3 economic growth, is significantly eroding consumer confidence and household spending, despite ongoing policy support. Analysts suggest more impactful measures, such as stabilizing first-tier city prices, are needed, as a recovery is anticipated to be prolonged, potentially extending beyond a year.

Analysis

China's new home prices experienced their fastest monthly decline in 11 months in September, falling 0.4% month-on-month, following a 0.3% drop in August. Year-on-year, prices decreased by 2.2% in September, indicating a sustained and accelerating downturn in the property sector. This weakness is widespread, with 63 of 70 surveyed cities reporting month-on-month declines and secondary home prices sliding across all tiers.

The persistent property market slump is significantly eroding consumer confidence and household spending, contributing to slower headline economic growth in Q3. Despite numerous policy interventions, including mortgage rate cuts and eased buying curbs, the market remains weak, highlighting the ineffectiveness of current measures. Property investment and sales also showed faster declines in January-September, exacerbating the economic drag.

Analysts anticipate a prolonged recovery, potentially extending beyond a year, with Centaline Property Agency's Zhang Dawei expecting a 10% drop in transaction volumes this year. Nomura suggests policymakers may need to reintroduce measures to stabilize or increase housing prices in first-tier cities to boost consumption. The upcoming Central Committee meeting is expected to prioritize sector stability and encourage local stimulus policies, indicating a continued focus on intervention.

Key Decisions for Investors

• Investors should closely monitor the outcomes of the Central Committee meeting and subsequent policy announcements for more aggressive stimulus measures, particularly those targeting first-tier cities or broader tax deductions.
• Re-evaluate direct and indirect exposure to China's real estate developers, related financial institutions, and construction materials companies, given the anticipated prolonged recovery and ongoing default risks.
• Pay attention to future consumer confidence and retail sales data, as a sustained property downturn will continue to suppress household spending and broader economic activity.