The National Bureau of Statistics reported a reverse in a declining trend in Chinese home prices. Prices rose by 0.2% month-on-month – the first positive sign observed since April 2014. Data was from the 70 largest cities in China.
However, the prices of new homes year-on-year fell by 5.7% in May, although this decline was less steep than in previous months. In April, China saw a decrease in prices of 6.1%. In the month of May, Shanghai and Beijing saw a decrease in prices of 2.3%.
Out of all 70 cities, Shenzhen had the best performance. Shenzhen home prices rose by 6.6% from April to May and also showed a second consecutive month of increase.
According to Reuters, investment in real estate slowed down in the first five months of 2015 to the lowest pace since May 2009. Besides Shenzhen, investment levels also remained high in lower-tier cities.
China is facing a challenging decline in its property market, representing a major threat to an economy where construction activity is so important. The nation’s economic growth slowed to a six-year low of 7% in the first quarter of 2015, which was mainly due to a decline in domestic and international consumption which persisted into the second quarter.
Some analysts say that the Chinese government needs to focus on strengthening its policies. China’s central bank took action in May by cutting interest rates to stimulate the market. This will enable banks to increase lending by reducing the amount of cash held in reserve.
According to Wee Lee, managing director and regional head of property research at BNP Paris, the market has reached the bottom already and will soon begin to show more positive signs. However, this recovery will be on two different speeds.
“What we see in the tier one and two cities is a recovery in volumes and prices are creeping up, but on the other hand, tier three and four cities, given the oversupply situation, are still at the bottom. We are not seeing prices dropping but we are seeing a floor after the government’s support to stimulate the market.”
China plans on investing in key sectors such as shantytown renovation, rural power infrastructure and urban transport in order to revive economic growth.