Yesterday evening I stopped to take a look at the twin towers at the Vauxhall end of the Nine Elms development which look nearly complete. As they have changed hands they symbolise the problems that China is experiencing in the real estate sector and we can this morning take a further look at the numbers for the domestic state of play.
BEIJING: China’s new home prices dropped for an eighth straight month in February, official data showed on Friday, suggesting the fragile property market is struggling to find a bottom despite a slew of measures to shore up the sector.
New home prices fell 0.3% month-on-month, in line with January’s decline, according to Reuters calculations based on National Bureau of Statistics (NBS) data.
On a year-on-year basis, prices fell 1.4 per cent, faster than the 0.7 per cent drop in January and the biggest decline in 13 months. (Reuters)
As you can see they are singing along with Paul Simon.
Slip slidin’ away
Slip slidin’ away
You know the nearer your destination
The more you’re slip slidin’ away
Whilst I see some arguing that there is an easing because the monthly fall has slowed from 0.37% to 0.36%. If only the figures were that accurate! But the real issue is in line with my theme that the ending of the previous boom will cause trouble as around 30% of the Chinese economy depended on it. The whole psychology was based on a version of what economists call “free money” where it does not matter how much you pay or how shoddy the building was you ended up with a profit. But now that is over and according to the official figures there is a pretty consistent decline ( -0.45%,-0.37% and now -0.36%). I do not know what is Chinese for negative equity but I am sure that minds will be thinking about it.
If anything it looks as though the declines are broadening.
Home prices fell in 59 cities in February, up from 56 the previous month. Three of the four first-tier cities, including Beijing and Shenzhen, registered a month-on-month decline in prices last month. (Reuters)
Also maybe developers are under pressure to hold up prices for new homes as the situation is worse for existing ones.
Existing-home prices dropped 5.2% year on year, worsening from 4.5% in January and falling in all 70 cities. They declined 0.62% month on month, improving from a 0.68% decrease in January. (Bloomberg)
I think the fact that they are falling in all cities is rather eloquent.
Consumption Problems
One way of looking at the Chinese economy is that it has too much investment and too little consumption. The central banking argument that higher house prices create wealth effects via more consumption is not going so well with house prices falling as this from Reuters points out.
