China’s property slump is not over yet with home sales, rents under pressure: Fitch

China’s property market downturn is likely to persist this year with slower home sales and construction activity, hobbled by “structural challenges” including oversupply and lower affordability, according to Fitch Ratings.

The value of new home sales was expected to fall 15 per cent to about 7.3 trillion yuan (US$1 trillion), reflecting a 5 per cent decline in the average selling price and a 10 per cent drop in gross floor area, the rating company said on Wednesday.

Low rental yields in major mainland cities compared with mortgage rates suggest further downside risk to home prices. Beijing launched a stimulus blitz in September to rescue the housing and stock markets in an effort to restore confidence among homebuyers but the euphoria has waned.

“Supportive government policies have stabilised near-term market sentiment,” said Tyran Kam, senior director and head of China property. “But the sustainability of this momentum remains highly uncertain due to high inventory levels, uncertain employment environments and low housing affordability.”

China’s real estate sector is facing a fourth straight year of distress. The sector contributed about a quarter of China’s gross domestic product, before the “three red lines” policy in August 2020 and the Covid-19 pandemic crippled the industry.