Chinese developers reported another weak month of sales, while the Chinese government sent the clearest message yet that it would not loosen housing market policy, despite the economic slowdown. 

The FTCR China Real Estate index fell to a six-month low of 47.2 in July, with 29 per cent of the 300 developers surveyed saying that sales were down on the previous month. House prices continued to rise, if at a slower pace than in June, but are expected to cool further into August, while developers expect sales to drop again. 

The survey was conducted just ahead of the release of a statement from the Communist party politburo that explicitly ruled out a lifting of the blanket restrictions on the purchase and sale of housing, which were introduced in the wake of the market’s astonishing run-up in 2016. 

Chaired by President Xi Jinping, the half-year meeting to discuss the economy concluded with the authorities saying they will “not use real estate as a short-term economic stimulus method”. 

This new wording appeared to dash lingering market hopes for more decisive action to boost the housing market amid signs of falling sales and increasing financial strains among smaller property developers. 

Although local governments have been given some leeway to relax their stances, speculation had been building for a shift in policy at the central level to help boost the flagging national economy. 

Credit availability — measured by the number of developers in our survey reporting that first-time buyers are paying above the benchmark rate to secure a mortgage — remains restrictive, and housing sales are suffering accordingly. While rising house prices have underpinned the sentiment of consumers, they are showing more appetite for saving, rather than investing or consuming as economic fragilities mount.   

But the government has little appetite for removing the shackles on a sector that it has blamed for generating dangerous levels of debt. 

Although growth is slowing towards the 6 per cent floor of this year’s targeted range, the authorities may continue relying on infrastructure investment to lend support as they try to manage the Chinese economy’s deceleration to a slower pace of expansion (technically, the economy could grow as slowly as 5.7 per cent in the final six months of the year and the government would still meet its target). 

However, this benign scenario assumes there will be no surprises before the end of 2019. This is a near-impossibility given the trade war, a struggling global economy and the known unknowns in the Chinese financial system— not to mention the fallout of a slow and steady decline in the property market. 

In the event of an emergency, the government could still fall back on housing for succour, as it has done so frequently in the past.

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 combines findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.