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Predictions for the Future of China's Property Market.

 Sales of newly built homes in Wuhu, a city in east­ern China about 300km from Shang­hai, were up 10

City

per cent last month from 448 prop­er­ties in Decem­ber. The tepid real estate recov­ery in Wuhu under­scores the chal­lenges for Chinese poli­cy­makers to stim­u­late the coun­try’s prop­erty mar­ket, a crit­ical growth engine that has floundered over the past two years under a gov­ern­ment crack­down and Covid-19 con­trols. Even by the stand­ards of other Chinese cit­ies, Wuhu has an abund­ance of unsold homes, a per­son briefed on the mat­ter said. «Home­buy­ers are back,» said an exec­ut­ive at a developer with projects in Wuhu.

Sales of new homes in China’s 30 significant cit­ies fell 31 per cent in 2022 and con­tin­ued to decline last month, accord­ing to Wind, a fin­an­cial data pro­vider. In Wuhu, an aver­age 90 sq m flat cost about Rmb900,000 the previous month, still down a fifth from a year earlier. Even with the coun­try reopen­ing and the gov­ern­ment eas­ing its lever­age lim­its to stir growth, «the eco­nomic fun­da­ment­als are too weak to sup­port a dra­matic turnaround in real estate», said Bo Zhuang, a Singa­pore-based eco­nom­ist at Loomis Sayles. That has promp­ted developers to take aggress­ive steps to revive sales.

While sales rose by a third month on month in Janu­ary, a GSH offi­cial said the project was barely mak­ing a profit after the dis­count, which amoun­ted to about 20 per cent of the price of an aver­age three-bed­room apart­ment. Wuhu’s age­ing pop­u­la­tion is also partly to blame for the house price decline. As with many of its inland peers, the city has recently faced an out­flow of youth, a significant source of demand for new homes. At No 1 Park Avenue, a pop­u­lar res­id­en­tial com­pound in a Wuhu sub­urb that was com­pleted and sold out seven years ago, more than 10 per cent of apart­ments have never been occu­pied, accord­ing to an internal doc­u­ment from the local homeown­ers’ asso­ci­ation.

The Wuhu local gov­ern­ment is eager for the mar­ket to rebound, announ­cing a num­ber of incent­ives since the second half of 2022, includ­ing pur­chase sub­sidies worth up to a 10 per cent dis­count. «How do you expect new home prices to take off when so many exist­ing homes are up for grabs at a dis­count price?» asked a developer. Local home­buy­ers voiced cau­tion. Last month the Wuhu city fin­ance bur­eau set a 20 per cent growth tar­get for land sales this year.

«It will take a long time for con­fid­ence to be restored,» said the exec­ut­ive at the Wuhu developer, which has no plan to expand.

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