China’s home-price growth slowed to an 18-month low in January, but it looks set to fall a lot further as Beijing’s long-running attempts to rein in the property market meet with effects from the coronavirus outbreak.
The coronavirus, which has halted business across the country, is raising concerns about a rare contraction in house prices in the world’s second-largest economy and forcing developers to scramble in response.
On Monday, the National Bureau of Statistics reported that the average price of new homes in 70 Chinese cities increased 6.45% in January from the same period last year, the lowest growth rate since July 2018, according to Wall Street Journal calculations.
But the January data largely failed to reflect the impact of the coronavirus, which has shut down commerce and kept much of the country holed up at home.
Though the virus is believed to have first emerged from the central Chinese city of Wuhan in December, it didn’t begin to affect consumer behavior until after authorities ordered Wuhan’s shutdown on Jan. 23.
Since then, home sales in China likely plunged by nearly 90% compared with a year earlier, according to Hong Kong-based property consultancy Centaline, as property developers closed sales centers across the country.
That means February will likely be the first full month to bear the brunt of the disruptions from the virus, which has sickened more than 70,000 people and killed more than 1,770 in mainland China alone.
“There will certainly be a nationwide large-scale price reduction in February,” said Zhang Dawei, a Beijing-based analyst for Centaline.
Price growth was already slackening in recent months as regulators tightened policy in an attempt to engineer a gradual slowdown in home-price increases.
Even before the outbreak, many property developers had trimmed their sales-growth target for 2020 to between 10% and 20% from a range of between 20% and 50% during the headier years.
Now, developers are bracing for a deeper and more prolonged period of pain — and turning to creative sales tactics to offset the challenges. One of China’s largest developers, China Evergrande Group, late Sunday began promoting discounts online, slashing prices by 25% for all residential properties, starting Tuesday through the end of the month. For March, the discount will be 22%.
The fire sale follows a promotion launched by Evergrande last week, in which home buyers need a refundable down payment of only 5,000 yuan, or about $715, to claim an apartment unit. That helped Evergrande rack up 47,500 commitments in a span of three days.
The aggressive sales pitches highlight the precarious balance sheets of many Chinese property developers, of which Evergrande is one of China’s most indebted, with a debt pile of $132.5 billion as of June 2019, according to Moody’s estimates.
Evergrande, with a market capitalization of more than $32 billion, has often turned to creative marketing techniques to sell units, but even so, the magnitude of the discounting this time is unprecedented, the company said.
The coronavirus is expected to take a toll not just on unit sales, but also on home building, as the widespread lockdowns prevent construction workers from returning to building sites.
Last week, several Chinese cities and provinces, including Shanghai, Xi’an and Zhejiang, promulgated policies aimed at reducing the burden on developers. The measures include credit support, a delay in payment deadlines for parcels of land and a loosening of presale conditions.
Economists said the epidemic is likely to hit China’s economy harder than 2003’s outbreak of severe acute respiratory syndrome, or SARS.
“The SARS epidemic in 2003 was relatively concentrated in duration and in affected areas, and only had a small and short-term impact on the real-estate market. The situation of the coronavirus is more severe,” noted Xia Dan, a senior researcher at Bank of Communications.
For now, Monday’s monthly data release showed slowing home-price gains in January, both compared with a year ago and with the previous month. Compared with December, the January increase of 0.26% was slower than December’s 0.35% price gain compared with November.
Prices of new homes also increased in 66 of 70 cities in January from a year earlier, compared with 68 in December.
Analysts at S&P Global Ratings said in a report earlier this month that they expect overall sales volume to tumble if the epidemic stretches into the second or third quarter of the year.
“We believe national residential sales are at risk of a contraction,” they wrote.
Other analysts are taking a more sanguine view, predicting only a short-term impact.
“The market will be disturbed in the short term, but it does not mean that house prices will fall sharply in 2020,” said Xu Xiaole, chief analyst of Beike Real Estate Research Institute. “Most home buyers are just postponing demand, and the delay will last no longer than six months.”
One question that remains is whether or not policy makers will step in to boost home sales — a tried-and-true response to previous bouts of economic uncertainty.
Goldman Sachs analysts suspect the answer is no this time, pointing to Chinese policy makers’ recent commitment to prudence in the property sector.
“We do not expect nationwide easing in the property market,” the investment bank told clients in a note earlier this month.
