Ryan Woo and Liangping Gao

BEIJING (Reuters – China’s home prices dropped in May for the second consecutive month. The drop was caused by weaker buyer confidence and COVID-19 curbs.

According to Reuters, the average monthly new-home price in 70 major cities fell 0.1% month-on-month after a 0.2% decrease in April. These calculations were based on data published by National Bureau of Statistics on Thursday.

The prices fell 0.1% compared to a year prior, which is the first drop since September 2015, and a significant decline from April’s 0.7% gain.

The slowing economy and tight mortgage payments have caused a decrease in price growth year over year. Sentiment was also affected by a liquidity crisis, which resulted in some prominent loan defaults from developers.

On Thursday, shares of developers on the mainland fell. The CSI300 Real Estate Index dropped around 0.5% following an opening of 2%.

China’s property sector has been a key pillar for growth. The authorities took additional steps to boost home demand after COVID-19 restrictions were placed in several of China’s largest cities.

Shanghai was kept indefinitely locked down from May 1st to May 31st, and Beijing closed entertainment venues and other places in certain districts due to the outbreak. China’s zero-COVID policies have strained supply chains and caused slowdowns in activity across many sectors.

More than 100 cities have implemented measures to ease the burden on the property sector in May. These include cuts in mortgage rates and lower down payments, as well as relaxations in buying rules.

On May 22, Wuhan, the central city, eased some home-buying restrictions for buyers. This allowed households that have more than one child to purchase up to three properties.

NBS found that in May 25 cities out of 70 reported an increase in new home prices compared to the 18 cities which saw a decline in April.

It was still a difficult month in property markets, as new home prices fell for the ninth month.

Zhang Dawei of Centaline property consulting said, “Homebuyer confidence drops due to COVID-19 even though there are frequent stimulus policies.”

A recent Reuters poll suggests that China’s real estate market woes will worsen in 2018, with property prices staying flat, and sales and investment continuing to decline.

In an effort to increase demand, the financial authorities lowered their benchmark interest rate on mortgages last month and reduced the ceiling for first-time homeowners.

In May, property sales by floor area fell for the first-time in three months.

In the next few months, more easing measures are anticipated to boost the sector.

Zhang, Centaline, says that the stabilization of the real estate market requires more stimulus, including further (reductions in mortgage rates) for buyers.