China's home prices halt decline in March, but pressures remain

By Liangping Gao, Yukun Zhang and Ryan Woo

BEIJING (Reuters) - China's new home prices stabilised in March after a slight month-on-month dip in February, as government support measures struggled to counteract persistently weak demand in the debt-ridden property sector.

Any signs of a price bottoming in the key sector, which accounted for roughly a quarter of economic activity at its 2021 peak, will provide some relief on the domestic front as the economy is buffeted by mounting pressures from U.S. tariffs.

China's flat home prices in March was a slight improvement from February, when prices fell 0.1% month-on-month, Reuters calculations based on National Bureau of Statistics (NBS) data showed on Wednesday. From a year earlier, prices were down 4.5%, a marginal improvement from a 4.8% decline in February.

In recent months, Chinese policymakers have repeatedly pledged to stabilise prices, seeking to fuel growth in an economy grappling with higher external risks.

"Looking ahead, exports are up against mounting U.S. tariffs. Trade tensions between China and the U.S. escalated significantly in April, with the economic powerhouses embroiled in a tit-for-tat tariff match," said Sarah Tan, economist at Moody's Analytics.

"To mitigate the impact of poorer external conditions, policymakers have begun to shift their focus towards sustainable economic growth from within. The cratering property market remains front and centre of households' concerns," Tan said.

NBS data showed resale home prices fell across the board on an annual basis but saw a marginal monthly increase in the country's Tier 1, or biggest cities, compared with February.

An index tracking China's real estate shares was largely unchanged.

STILL IN THE RED

Property sales by floor area dropped 3.0% in the first quarter, easing from a 5.1% contraction in the first two months of the year, while investment in the sector fell 9.9%.

Property sales could bottom out by the end of the year, with investment declines narrowing this year and stabilising by late 2026 or early 2027, said GDDCE Research Institution analyst Ma Hong.

He expects a 50-basis-point cut to the five-year loan prime rate (LPR) by late Q2 or early Q3 to ease financing costs.

Once a major growth driver, China's housing sector entered a prolonged downturn in 2021, with many developers defaulting on their debts and consumer confidence sinking.

With property values, sales and investment slumping, the downturn has become a significant drag on the world's second-largest economy, necessitating the need for stronger policy responses if China is to meet its 2025 GDP goal of around 5%.

"China's prospects for this year remains muted, as rising tensions with the U.S. lead to weaker exports and investment. That chaos will keep households nervous, while any recovery in the property market will be uneven and shaky," Tan of Moody's Analytics said.

Chinese policymakers have rolled out support measures in recent months to prop up the property sector, such as easier access to cash for developers, cuts in home mortgage rates and relaxed rules on buying homes.

"At present and in the coming period, China's real estate market still holds significant room for development, and efforts should be made to further unleash its market potential," Premier Li Qiang said on Tuesday.

Purchasing unsold existing home for affordable housing is an important means to promote the stabilisation of the real estate market, Li said.

(Reporting by Liangping Gao, Yukun Zhang and Ryan Woo; Editing by Jacqueline Wong)