The data is cold. The National Bureau of Statistics released data yesterday showing that in May this year, among 70 large and medium-sized cities nationwide, 35 cities saw month-on-month declines in new commercial residential prices (excluding affordable housing). The overall average decline was 0.15%, the lowest in nearly 24 months and the first negative growth during this period.

Before this, the real estate market had already shown anomalies. Since the beginning of the year, the market has remained sluggish with no improvement, and sporadic price cuts have gradually spread to cover first-tier cities. After three consecutive months of declining transaction volume, housing prices finally began to decline.

Market participants unanimously judged this as an "inflection point" because, against the backdrop of no obvious policy suppression, the traditional peak sales season saw "falling volume and prices." Some analysts believe that although local governments are rushing to rescue the market, the effects will not be very obvious. Moreover, given the current overall supply-demand balance in the market, the bottom of transaction volume may last for a long time, and the price adjustment cycle will also be prolonged.

Reality worse than data

According to National Bureau of Statistics data, in May this year, among 70 large and medium-sized cities nationwide, 35 cities saw month-on-month declines in new commercial residential prices, accounting for 50%, a surge of 27 from April. 20 cities remained flat, two more than in April. 15 cities saw increases.

It is worth noting that among the four first-tier cities where housing prices have always been firm, new home prices in Shanghai and Shenzhen also fell month-on-month, Guangzhou remained flat, and only Beijing rose slightly by 0.2%. In terms of month-on-month price changes, Hangzhou became the city with the largest decline, down 1.4%.

On average, the average month-on-month price of new commercial residential properties in 70 large and medium-sized cities fell by 0.15%, the first negative growth in nearly 24 months. Such a drastic change surprised many practitioners. Zhang Dawei, chief analyst at Centaline Property, analyzed that from the initial price adjustments in individual cities, to the block distribution in East China in March-April, to the majority of cities with declines mainly in eastern cities in May, the market has shown accelerated adjustment, and the speed of change has exceeded previous market expectations.

Year-on-year, although 69 cities still saw increases in new home prices, the average increase across the 70 cities has narrowed for five consecutive months, from 9.7% in December last year to 5.63% last month, also reflecting significant changes.

In fact, compared with private data and extreme cases in the media, official data released by the statistics bureau often appears mild and conservative. Analysts pointed out that the real estate market shows obvious differentiation. Outside the 70 large and medium-sized cities included in the statistics, the oversupply situation in small and medium-sized cities is more severe, and their housing prices have also seen more obvious declines.

The head of a private real estate enterprise in Shandong Province said that in several local cities where it operates, housing prices have generally been lowered. In some cities, prices have dropped to cost levels, leaving developers with almost no profit. Nevertheless, houses are still difficult to digest, and many real estate projects under construction have been suspended this year.

At the same time, as projects become unfinished and unsold, the capital chains of some small and medium-sized developers are under enormous pressure, leading to debt defaults. A banking source told the China Securities Journal that although there has not yet been a large-scale "runaway," many small and medium-sized developers have indeed reached the brink of bankruptcy.

The logic of price cuts

From a market logic perspective, the emergence of this round of price cuts is not surprising. National Bureau of Statistics data shows that in February, March, and April this year, the national commercial housing sales area declined continuously. By May, the decline had expanded to 7.8%, while in the same period last year, the figure was an increase of 35.6%.

"Falling volume" is often seen as a precursor to "falling prices." After three consecutive months of sluggish transactions, price adjustments become logical. "There is no need to argue about whether to cut prices; how to cut them is the main topic of discussion in the industry," said the head of a well-known real estate enterprise in Beijing, noting that in recent exchanges with several project managers, he found that almost all are studying price adjustment strategies.

Centaline Property's analysis believes that the current market cooling is mainly caused by two factors: first, the accumulation of market risks such as excessive supply in some cities in the early stage and rapid housing price increases; second, the demand gap caused by the concentrated release of transaction volume in the early stage, coupled with some demand falling into a wait-and-see attitude due to price adjustments.

Lianjia Property [Weibo] pointed out another major background, namely the continuous tightening of credit policy. Zhang Xu of Lianjia Property's market research department believes that although the central bank [Weibo] has recently taken several targeted easing actions, from the perspective of the central government's emphasis on structural reforms in the economic field this year, a comprehensive reserve requirement ratio cut is unlikely.

It is worth noting that recently, many local governments, including Nanning, Tianjin, Wuhu, Hangzhou, and Fujian, have introduced market rescue policies, but judging from housing price performance, the actual effects of these policies seem limited.

Zhang Dawei said that this real estate market change is the first time in history that a market downturn has been caused by non-policy factors, which may lead to a longer and deeper adjustment cycle this time. In particular, non-core cities and non-core urban areas may see obvious price adjustments.

The "non-policy factors" he refers to mean that after years of high-growth real estate investment, the current supply-demand relationship in the real estate market is stabilizing, and some cities are experiencing oversupply. From previously published statistics bureau data, it is not difficult to see that the growth rates of indicators such as real estate investment, new construction area, and sales have all reached rare lows.

No "collapse" for now

As prices decline, the adjustment in the real estate market will further deepen. Zhang Xu believes that in the second half of the year, the number of cities with falling housing prices will continue to increase, and all first-tier cities may join the price-cutting camp, with risks increasing in third- and fourth-tier cities with high inventory. At the same time, the year-on-year housing price index may also turn negative by the end of the year.

This conclusion is agreed by most industry insiders. There are two reasons: first, from market performance, the current sluggish transaction state in the housing market is difficult to fundamentally change, so the low transaction volume will continue to suppress prices; second, according to statistics bureau data, among the 70 large and medium-sized cities, 35 cities saw second-hand home prices decline in May. As another leading indicator, the decline in second-hand home prices also indicates that new home prices will continue to fall in the future.

Yang Hongxu [Weibo], deputy director of the Shanghai E-House Real Estate Research Institute, said that since 2004, China has experienced three short real estate cycles, and is now entering the fourth cycle.

He said that the previous two adjustments occurred at the end of 2008 and early 2009, and at the end of 2011 and early 2012. Among them, the housing price decline cycle lasted 6 months in the former and 8 months in the latter. Because it was in the "golden decade" of real estate, the adjustment pattern was: prices rose sharply when rising and fell only slightly when falling; rising periods were long, and falling periods were short.

In contrast, the current internal and external environment is relatively harsh, mainly reflected in the absence of the "four trillion" fiscal stimulus plan and ultra-loose monetary policy, and the overall market is facing "oversupply." This also determines that this round of market adjustment will have a longer cycle, meaning the housing price decline may last more than 8 months.

But from a long-term perspective, the real estate market will still usher in a "silver decade." That is, as the supply-demand relationship improves and policies are continuously refined, the real estate industry will shift from high-speed growth to low-speed growth; profit margins of real estate enterprises will be compressed, and enterprises will face mergers and integration; the real estate market will shift from an incremental market to a stock market; supply and demand will stabilize, and housing prices will stabilize.

Therefore, in this round of adjustment, the price decline will still not be too large, and a "collapse" will be even harder to occur. Yang Hongxu estimates that the maximum year-on-year decline in average housing prices across the 70 large and medium-sized cities will be around 5%.