The market at the heart of the Chinese economy is sputtering. Our monthly survey of 300 property developers from around the country suggests housing sales are falling at their fastest pace in nearly four years. Prices may have fallen for a third month in a row, pointing to even slower economic growth and mounting pressure on the authorities to let local governments relax their purchase restrictions. 

The headline FTCR China Real Estate Index fell 4.2 points from December to 35.3, marking the lowest reading since February 2015. Even accounting for the lunar new year holiday lull, January’s was a weak reading, dragged by a faster drop in sales in first-tier cities and particularly negative views about activity in the month ahead. 

The slowdown in the housing market is a direct, if belated, response to local government efforts — acting under the direction of the central authorities — to rein in surging house prices and stamp out speculation. The boom in mortgage lending, which was explicitly encouraged after the 2015 stock market crash, has been wound down by a leadership nervous about the risks associated with untrammelled lending to the housing market. Our measure of credit availability — the proportion of first-time buyers receiving discounts on official mortgage rates — shows the direct impact of tighter lending policies on the official year-on-year measure of sales. 

As the economy has slowed, and  developer finances have become more strained, the government has faced renewed calls to once again ease restrictions on the purchase and sale of housing. Starting at the end of last year, a handful of cities loosened or removed entirely some of their rules, fuelling speculation that they marked the beginning of a nationwide relaxation. But the central government does not appear ready to give way, showing a preference for economic stimulus via low key, targeted measures. 

Our measure of downpayments suggests financing conditions have eased slightly in recent months — the number of developers saying buyers were having to put down at least 31 per cent of the value of the property fell again in January after peaking last March — but they remain very tight relative to the start of the cycle. 

Pressure to ease will rise as  the economy slows. Although the government has reportedly lowered this year’s growth target to 6–6.5 per cent, a sharp housing market slowdown threatens even the lower bound of that range. 

The leadership decries  the speculative forces that underpin China’s housing market but has failed to clearly articulate how it intends to drive them out. Until it abandons annual growth targets and makes good on a pledge to introduce a “long-term mechanism” to keep the housing market stable — and probably even after that — the government will be tempted to resort to its various levers to adjust buying activity and juice economic growth. 

The FTCR China Real Estate survey is based on interviews with 300 developers in 40 cities. For further details click here. This report contains the headline figures from the latest Real Estate survey; the full results are available from our Database.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.