A trend of falling Chinese real estate prices might be coming to an end. The National Bureau of Statistics reported that prices rose by 0.2% month-on-month.

This would be the first positive sign since April, 2014. However, prices of new homes year-on-year fell by 5.7% in May. They dropped 6.1% in April.

Shanghai and Beijing saw a decrease in prices of 2.3% in May. Out of the 70 cities observed, Shenzhen had the best performance. Shenzhen property 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.

 

Trend of Falling Chinese Real Estate Prices

China is facing a decline in its property market –  a major threat to an economy where construction activity is so important. Economic growth slowed to a six-year low of 7% in the first quarter of 2015. This 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, regional head of property research at BNP Paris, the market has reached the bottom and will soon 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, infrastructure investment and urban transport in order to revive economic growth.

Despite a slightly better outlook, InvestAsian doesn’t recommend buying real estate in China. We suggest places like Malaysia where things are easier and foreigners can own land on a freehold basis.

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