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China Home Prices to Fall Another 15% in Two Years: Barclays

China's home prices recorded their seventh consecutive monthly fall in April, with one expert expecting up to 15 percent more downside in the near-term, putting property stocks under pressure.

Apartment buildings in Liaoning Province, China.
Jerry Driendl | The Image Bank | Getty Images
Apartment buildings in Liaoning Province, China.

"We forecast average property prices to fall 10-15 percent in China over the next two years," Barclays' analysts wrote in a report. "House prices will see a significant correction from the policy-induced slowdown in demand, an aggressive expansion in supply and a long build-up in debt among property developers."

Average home prices in China's70 major cities fell 1.2 percent in April year on year after dropping 0.7 percent in March, according to the National Bureau of Statistics. A private sector survey earlier this month showed that China home prices in April fell for the eighth month in a row.

Together with holding on to restrictions on investing in the property sector and increasing the availability of credit by cutting banks' reserve requirement, Barclays thinks the government is orchestrating an "orderly" price correction.

Property Stocks Down

The news of falling home prices sent the stocks of major Hong Kong listed Chinese developers plunging Friday with China Land Overseas and Investment and Country Garden falling more than three percent, while Soho China fell four percent.

Even though Chinese developers are being supported by increased liquidity and have attractive single-digit valuations, Dickie Wong, Executive Director, Kingston Securities, says investors should wait for another fall of around 10 percent in property stock prices before getting in.

According to him the latest easing is not enough and the sector needs an interest rate cut for a significant rebound. "As long as the central bank puts on hold the interest rate cut, there won't be a very big rebound in property share prices," Wong told CNBC's "Cash Flow."

But Aaron Boesky, CEO, Marco Polo Pure Asset Management, says that a drop in house prices is good for the broader equity market in China as liquidity will flow back into stocks.

"[The fall in housing prices] is good for the stock market ultimately, because that's where liquidity in the Chinese stock market went, it went into a housing bubble," Boesky told CNBC Asia's "The Call."

By CNBC's Rajeshni Naidu-Ghelani

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