China's new home prices fall at faster pace in May on soft demand

China’s property sector showed further signs of strain in May as new home prices declined at an accelerated pace, according to official data. Prices dropped 0.2% from April, worsening from a 0.1% decrease the prior month, while annual prices fell 3.5%, matching April’s decline. The downturn has deepened concerns about the sector’s role as a drag on the economy, which once relied on real estate for a quarter of its growth. Tier-one cities like Shanghai, Shenzhen, and Guangzhou recorded modest price increases in May, rising 0.2% after a 0.1% gain in April, signaling tentative stabilization. However, smaller tier-two and tier-three cities continued to experience extended declines, with resale prices falling in May for the second consecutive month. Analysts noted divergence in market performance, with tier-one cities showing resilience while tier-three cities remain under pressure. Property sales, investment, and developer activity all contracted sharply in the first five months of 2024, according to official statistics. New construction and funds raised by developers also fell, contributing to a broader slowdown in the sector. Stocks tracking China’s real estate sector dropped in trading, with mainland-listed developers declining around 3%. Local governments have introduced incentives to boost sales, such as Guangzhou’s subsidies for home upgrades and state-owned firms purchasing second-hand properties. However, weak household demand has kept second-hand home supply elevated, particularly in tier-two and tier-three cities, where destocking cycles are expected to prolong low price levels. Analysts predict prices may stabilize more gradually, with slight declines forecast until 2026 before modest recovery in 2027.