China: Real estate prices are falling - what this means for China's economy

China: Real estate prices are falling - what this means for China's economy

According to a report by finanzmarktwelt.de,

Years of growth in China, driven by rising real estate prices, have led to a unique scenario: Chinese residential real estate prices fell the most in eight years in October. This has serious implications for the world's second largest economy, as real estate accounts for 70% of Chinese people's wealth. The real estate sector contracted 2.7% in the third quarter and the downturn appears to be accelerating.

Figures from the National Statistics Office show that new home prices in 70 cities fell 0.38% month-on-month last month. This decline is the largest since February 2015. The fall in prices is a clear indication of the ongoing downturn in housing construction and has led to a decline in sales and property investment.

The government's measures to stimulate demand have so far had little effect. The price decline was less in Tier 2 cities than in Tier 1 cities, but overall the downward trend is clearly noticeable. The crisis has affected almost all major property developers, who are struggling to repay debts and complete projects.

In response, Beijing plans to allocate at least 1 trillion yuan ($138 billion) in low-cost financing for urban village renovations and affordable housing programs. This could have an impact on the market, but some economists are skeptical about the effectiveness of these new measures.

The real estate crisis remains the biggest drag amid rising credit risk among construction companies and is expected to continue to impact China's economic recovery.