Housing prices in a growing number of Chinese cities fell last month, weighed down by a sustained government campaign to deflate the market.
Official data published on Friday depicted a soft landing for the Chinese real estate sector, with prices for new homes dipping by an average 0.15 per cent month-on-month in the 70 cities monitored by the national statistics bureau. However, the trend was clear with housing prices falling in 34 of the cities in October, twice as many as in September.
China has used a battery of policies to cool its real estate market, trying to rein in the runaway prices that had become a major risk to the economy and a bitter frustration for ordinary citizens unable to afford property.
Since early last year, the government has raised the mandatory downpayment on mortgages, restricted the number of homes that people can buy and slowly choked off financing to real estate developers.
Investment in real estate accounts for about 10 per cent of China's gross domestic product, so the downturn in the housing market and the consequent slowdown in construction activity is expected to dampen economic growth. But even as Europe's debt woes cast a growing shadow over China, many analysts believe that Beijing will not lightly relax its property tightening measures, for fear of giving rise to an even bigger real estate bubble than before.
On the surface, the official data suggest that China's property market is holding up reasonably well. In Shanghai, prices for new homes dipped 0.3 per cent from a month earlier. In Beijing, they were down just 0.1 per cent.
But the numbers published by the statistics bureau are notorious for understating the true volatility in the market. When prices were soaring in late 2009, the official data showed annual gains of 10 per cent when private companies estimated that prices in top-tier cities had doubled.
One key concern now for both policymakers and investors is whether the official data will fail to capture the full extent of the stress in the housing market as prices fall.
A series of reports in official media have said that many smaller real estate developers are on the brink of collapse, blocked from bank financing and unable to generate cash flow as transactions plummet. In Wenzhou, the weakest housing market in the country, one developer recently offered free BMWs in the hopes of enticing buyers.
To support the economy even as it heaps the pressure on real estate developers, the government has launched a program to build 36 million affordable homes over five years. But in a rare setback for such a high-profile policy target, the housing ministry has admitted that progress has been slow, raising doubts about whether the public investment in property construction can adequately compensate for the decline in private investment.