The Chinese real estate balloon could already be deflating as home prices have started declining in May, the first time in two years.
According to property firm Soufun Holdings, average home prices went down 0.3 percent to $1,760 across major cities in the country, making it the first slump since June 2012. The pace in home price growth also decelerated 1.2 percent compared to the figures of April. On an annual basis, prices fell in 31 cities with Wenzhou posting the largest decline of 8.3 percent.
"The property market has entered a stage of price correction after rising for nearly two years," according to CREIS, a consultancy that works with Soufun,
Soufun attributed the fall in home prices to tight lending and dwindling confidence among mid-sized developers, reports Forbes.
Last week, Premier Li Keqiang said that the government would control demand for housing among developers by introducing different regulations in different cities.
"The property cycle is turning downwards and the government has noticed that each city has different supply issues," Yao Wei, China economist at Societe Generale SA in Hong Kong told Bloomberg in an earlier interview. "Credit and liquidity are the key factors for the property sector, while easing mortgages is probably the easiest thing to do."
Previous purchase restrictions in the country slowed the property market down dangerously. Developers grappled with sluggish property sales and rising interest rates, which affected the market adversely.
However, the government has now ordered commercial banks to ease lending and interest rates to avoid a hard crash, reports Reuters.
Due to the easing efforts, sales have started to improve but experts are skeptical of how the efforts could soften the harsh landing.
"Sales in May have improved from April's figures, but this is due to an increase in project launches. There doesn't seem to be an improvement in the rate of clearing inventory," Johnson Hu, a property analyst at CIMB Securities told The Wall Street Journal.
However, housing officials of China announced that the decline in prices is "normal" and they are just a "high base effect."
"In general, most indicators of our property market are at normal levels," Feng Jun, chief economist at the Ministry of Housing and Urban-Rural Development,said at a news briefing."Previously the growth rate was so high, now the pace slowed a little bit, which is normal market adjustment," he said.
Feng also added that the government would continue to encourage genuine demand and protect consumers from "speculative demand," reports the Journal.
