Sentiment remains soft despite a slew of measures over the past year. One major concern is the continued slump in the property market. August’s 70-city sample of property prices showed a continued decline, with new home prices down -0.3% month-on-month, and used home prices down -0.58% MoM, both declining at around the same pace as July. While 13 cities saw rising new home prices, only one saw rising used home prices. This suggests pressure on homeowners continues.
This property market slump is also reflected in soft FAI data, as property investment dropped to -12.9% YoY ytd, the lowest level since the breakout of the pandemic in 2020. But excluding real estate, the National Bureau of Statistics noted, FAI was a comparatively robust 4.2% YoY ytd. The overall wait-and-see sentiment from corporates amid elevated uncertainty and soft sentiment was illustrated by private FAI falling to -2.3% YoY ytd, the lowest level since 2020.
The property market decline is a key driver behind soft consumer sentiment, which continues to dampen retail sales. As we warned in previous months, signs were that we were near the peak of the stimulus effect from the trade-in policy. As it faded, the risk was that consumption would soften further. This appears to be unfolding, as previous outperformers like household appliances (14.2%) and communication appliances (7.3%) both softened. A consumer loan subsidy programme, which is set to subsidise 1% of interest costs for loans of up to RMB 50k, started in September. This could offer some support for retail sales moving forward, though we expect the impact may be modest.
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