China real estate decline continues

China's housing prices fell for the fifth consecutive month in September as oversupply and falling sales continued to undermine the sector that has driven growth in the country for much of the past decade.

Falling prices and fewer sales in the Chinese housing market are key reasons for recent weakness in global markets for hard commodities such as iron ore, copper and coal, which are driven primarily by Chinese demand.

Prices fell in 69 out of 70 of the country's largest cities in September, after falling in 68 cities in August, China's National Bureau of Statistics said on Friday.

On an annual basis, average new home prices in the 70 cities fell 1.3 per cent last month from a year earlier, the first year-on-year drop in nearly two years, according to Thompson Reuters data.

The real estate sector directly accounted for an estimated 16 per cent of gross domestic product last year and is the main driver of more than 40 other industries, such as steel, glass and cement, all of which were already suffering from chronic oversupply before the current downturn.

In the third quarter China's economy registered its slowest pace of expansion since the depths of the global financial crisis, largely as a result of the property market slowdown.

With 7.3 per cent growth in the third quarter from the same period a year earlier, the world's second-largest economy is on track to grow at its slowest annual pace since 1990.

"The negative impact of the ongoing property downturn is being felt not only in heavy industry production, but also in manufacturing investment, both of which have weakened," said Wang Tao, chief China economist at UBS. "Investment in the mining sector also decelerated sharply, to its slowest pace in more than a decade."

Housing sales in the first nine months of the year fell 10.8 per cent compared with the same period a year earlier.

In spite of contracting sales and falling prices, investment in new capacity continues to pour in, with real estate investment up 12.5 per cent in the first nine months.

That means the property-led downturn in the economy is likely to continue and worsen as prices and sales volumes decline and new investment dries up.

In response to the property slump, Beijing has launched a series of policies to try to bolster the sector.

Local governments have introduced preferential policies for homebuyers and on September 30, the central bank loosened mortgage rules for buyers of second homes, reversing a largely unsuccessful four-year campaign to contain soaring home prices.

Zhao Jianbin, a real estate agent in Beijing, said he had seen a slight pickup in sales since the new policy was introduced three weeks ago but that it was less than he had expected and most prospective buyers remained cautious about buying in a falling market.

"Overall, we believe that the rolled-out policy-easing measures may help avoid a very sharp correction in the property market but are unlikely to reverse the course of correction, because of the significant oversupply," analysts from Nomura wrote in a research note.

"If the government shifts to aggressive policy easing, it may increase the demand for property, but property investment is also quite likely to rise as, historically, these two series tend to move in tandem, meaning that, despite any near-term improvement in sentiment, the chronic oversupply issue will likely continue and the correction will be merely more drawn out."

Additional reporting by Gu Yu

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