China – May property prices

Given everything else we already knew about May, it wasn't surprising that property prices were also weak last month. However, there needs to be a turnaround soon to think the correction is just cyclical rather than structural.

Property prices fell again in May, by 0.2% YoY, and in a total of 43 of the 70 cities tracked by the National Bureau of Statistics. This wasn't quite as weak as April, but does extend the current down-cycle in prices to nine months, which is longer than the price corrections experienced in 2008 and 2011.

Policymakers have been trying to reverse this, and so secure their objective of “stable prices”, with central government cuts in mortgage rates, and broad easing of macro prudential measures by local governments. Latterly, this easing has been in response to the negative shock dealt to the economy and property by the Covid-19 lockdowns of April and May.

Obviously, the covid disruption of the last couple of months explains some ongoing weakness in property prices. But real estate was weak even before then, and since covid there is thus a greater risk that the correction in property has become structural rather than just cyclical. One important upcoming release in assessing this risk will be the PBC's quarterly consumer survey, which includes questions about real estate buying intentions and property price expectations. A further fall in these indicators would increase the likelihood that property has fallen into a structural slump, a development which would have significant implications for the overall economy.