China’s Housing Prices Drop: Major Cities Affected
In July, new home prices in 70 major Chinese cities fell by 8% on average, according to data released on Thursday. This decline continues a property slump observed in the market. In June, property prices had already fallen by 0.6%.
China’s housing market had peaked in August 2021. However, government restrictions on property financing led to a crisis for major developers like Evergrande Group, causing a drop in housing sales.
Three-tier cities in China have seen a 10% drop in prices over the last three years. Second-tier cities, including provincial capitals, experienced a 5% decrease. First-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen saw only a narrow decline.
Meanwhile, prices of pre-owned homes, which are more volatile, fell in 67 out of 70 cities in July.
Chinese governments rely on the sale of state-owned lands to property developers to fund their expenses. Falling house prices put pressure on the price of these government lands. Weak property demand suggests that housing prices could continue to decline. Based on past property crashes in Japan and the US, prices in China could fall as much as 40% from their peak, according to Yao Yang, an economics professor at Peking University.
One of the biggest challenges in the property sector is projects that are abandoned before completion due to developers running out of cash. The International Monetary Fund (IMF) has raised concerns over China’s ongoing property crisis, suggesting that the Chinese central government should provide support to address unfinished housing. The IMF estimates that necessary fiscal spending amounts to 7 trillion yuan (USD 979 billion) over four years, based on 2023 figures.
However, the Chinese government has stated that existing policies are sufficient to bring a ‘positive trend’ to the property market, although these efforts have done little to boost sales so far.
Doubts Revealed
Housing Prices -: Housing prices are the amount of money people need to pay to buy a house. When prices drop, it means houses are getting cheaper.
Major Cities -: Major cities are the big and important cities in a country. In China, these include places like Beijing, Shanghai, and Guangzhou.
Property Slump -: A property slump means that the market for buying and selling houses is not doing well. Fewer people are buying houses, and prices are going down.
Developers -: Developers are companies that build houses and buildings. They sell these houses to people who want to live in them.
Evergrande Group -: Evergrande Group is a very big company in China that builds houses and other buildings. They are having financial problems right now.
Three-tier Cities -: Three-tier cities are smaller and less important cities compared to the biggest ones. They are not as famous or developed as first-tier cities.
Second-tier Cities -: Second-tier cities are medium-sized cities. They are not as big as the major cities but are still important.
First-tier Cities -: First-tier cities are the biggest and most important cities in a country. In China, these include cities like Beijing and Shanghai.
IMF -: IMF stands for International Monetary Fund. It is an organization that helps countries manage their money and economy.
Yuan -: Yuan is the money used in China. It is like how we use rupees in India.
