Fitch predicts 15-20% drop in China's new home sales value for 2024

June 11, 2024 (MLN): Fitch Ratings expects China’s new home sales value to decline by 15%-20% to CNY8.3 trillion-8.8tr in 2024, reflecting a 10%-15% decline in gross floor area (GFA) sold and 5% decline in average selling prices (ASP).

This follows sales trends in the first four months that have fallen short of our previous forecasts of a 5%-10% sales value decline, and also reflects the more prominent downward pressure in new home prices.

The new home ASP had been stable relative to GFA in previous years, with changes of +4%, -2%, and +6% in 2021, 2022 and 2023, respectively, due partially to a sales mix shift toward higher-tier cities where home prices are on average more expensive.

Fitch’s previous expectation was that the sales mix shift towards higher-tier cities would continue to balance out price tensions in smaller cities this year, but recent trends indicate a more intense decline in prices than previously forecast, especially as ASP in higher-tier cities also begin to see greater downward pressure.

This has prompted us to revise our forecasts to a 5% decline in ASP in 2024, factoring in the 4M24 pricing trend and potential policy impacts.

The recent relaxation of purchase restrictions in some higher-tier cities and the latest policy package from the central bank could help to stabilize sales in these regions to an extent, while the impact on the lower-tier cities is likely to be much more limited.

Fitch believes the shift in sales mix will continue, as seen in the first quarter with a 46% YoY sales drop in tier-3 cities compared with the approximate 37% decline in both tier-1 and tier-2 cities.

Our updated forecasts estimate a range of 800 million to 850 million sq m of GFA to be sold in 2024, adjusted down from the previous projection of 850-900 million.

The lower bound at 800 million is based on a 5% decline to the 2H23 monthly run rates, implying a run rate of 68 million sq m between May and December 2024.

This reflects our expectation that the latest policy aid for the housing market will help to ease some downward pressure seen in 4M24. Sales in 4M24 fell 31% from a year ago.

Meanwhile, signs of stabilization in the secondary home market - observed in the first couple of months in 2024 - have diminished, with asking prices maintaining a downward trajectory, reflecting a dampening trend in homebuyer sentiment.

Fitch believes the significant unsold housing stock in many cities, which is constraining developers’ liquidity, is also weighing on homebuyers’ confidence.

The government has stepped up its efforts to reduce the inventory of unsold homes, but the scale of measures announced so far may only be capable of absorbing a fraction of the total stock.

The agency’s long-term housing outlook forecasts an average housing demand of 800 million sq m, consistent with the lower bound of our expectations for this year wherein private housing may supply only 600 million of these.

The remaining 200 million sq m gap may be addressed by public rental housing and existing housing stocks, as some local state-owned enterprises are purchasing unsold residential properties - as part of the government efforts to reduce unsold housing stock - to convert them for this purpose.

The 800 million sq m of annual sales is significantly lower than in previous years, suggesting the trend of sector consolidation may not abate for some time.

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