Chinese house prices fall at fastest pace in a decade

May marked the 11th consecutive month of declining property prices in China - Jade Gao/AFP

Chinese property prices fell at their fastest pace in a decade last month, fuelling fears over the health of the world’s second-largest economy.

Prices for new homes were down 0.7pc month-on-month in May, in what was the biggest monthly slump since October 2014, according to the National Bureau of Statistics (NBS).

This marked the 11th consecutive month of falling property prices in China, which are down 6.4pc since their peak three years ago. That is despite a significant package of government stimulus.

Second-hand home prices were also down 1pc month-on-month, representing the largest monthly fall since 2011. This means non-new build property prices have dropped 12.3pc from their peak in 2021.

Lynn Song, chief economist for Greater China at ING, said the latest figures may “ring some alarm bells” as policymakers in Beijing have been unable to stabilise the housing market.

He said: “This data further indicates that the property sector will remain a headwind on growth this year.”

China’s housing market has been battling a prolonged downturn ever since the collapse of property giant Evergrande at the end of 2021.

This has weighed hugely on the economy as property development previously made up a fifth of China’s GDP.

Challenges across the sector have continued despite the government introducing measures to reignite activity.

In May the Chinese government announced its biggest package of support measures to date, cutting mortgage affordability restrictions and setting up a 300bn renminbi (£33bn) re-lending fund to help local governments buy up unsold stock and turn it into affordable housing.

But Duncan Wrigley, chief China economist at Pantheon Macroeconomics, said these measures do not go far enough.

He said: “The re-lending facility probably isn’t large enough to support sufficient funding for local governments to buy up enough inventory.”

Property prices are “yet to bottom out”, Mr Wrigley warned.

That is despite the number of new homes sold falling by 27.9pc last year, reflecting the huge drop-off in demand.

Further cuts in mortgage interest rates expected

Yuting Yang, economist at Goldman Sachs in Asia, said she expected more government housing support in the coming months, such as further reductions in mortgage interest rates.

However, she warned that even this is unlikely to boost activity.

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