China’s new home prices decreased for the second consecutive month in July, dropping by 0.3% from June. This decline slightly narrowed in major cities as more local governments introduced homebuying incentives. According to Reuters’ calculations from National Bureau of Statistics data, 60 out of 70 surveyed cities experienced month-on-month price drops, maintaining a similar rate to June.

Annually, prices fell by 2.8%, showing some alleviation from June’s 3.2% decline. Despite this, year-on-year decreases moderated slightly across all city tiers. Policymakers aim to stabilise the property market, which once contributed a quarter of China’s economic activity, as part of their strategy to achieve an approximate 5% GDP growth goal amidst domestic and external challenges.

Government Incentives And Policies

Numerous demand-boosting measures and liquidity support efforts for developers have yet to produce a lasting recovery. Recent strategies included increased use of housing provident funds, purchase subsidies, and lifting suburban buying restrictions in Beijing while keeping limits inside the fifth ring road. Additional data revealed that China’s property investment dropped by 12.0% year-on-year from January to July, a larger fall than the 11.2% decrease during the first half of the year.

We are seeing that the persistent weakness in China’s property sector remains a central theme, reminding us of the similar price drops observed back in mid-2024. The data shows new home prices are still declining on a monthly basis despite various government support measures. This signals that a bottom has not yet been found, making bullish bets on the sector very risky in the coming weeks.

Looking at the most recent data for July 2025, we see property investment has fallen by 9.5% year-on-year, showing the problem extends beyond just home prices. This lack of confidence is reflected in the Hang Seng Mainland Properties Index, which has fallen over 15% since the start of this year. The government’s failure to deliver a decisive support package continues to weigh on investor sentiment.

Market Implications And Strategies

Given the slump in construction activity, we should consider bearish positions on related industrial commodities. For instance, iron ore futures have recently dipped below $110 a tonne on the Singapore Exchange as demand forecasts are being cut. Buying put options on major mining companies heavily exposed to China could also serve as a valuable hedge against further deterioration.

We can expect continued pressure on the yuan, as the People’s Bank of China might be forced into further monetary easing to stimulate the economy. This makes shorting the offshore yuan (CNH) against the dollar an attractive strategy through futures contracts. We should also look at buying put options on broad China-focused ETFs to protect against a wider economic slowdown.

The constant stream of policy announcements, followed by disappointing data, is creating high levels of implied volatility. We could use options strategies like long straddles on key Chinese bank stocks. This would allow us to profit from a large price swing in either direction, whether from a surprise stimulus package or another major developer default.

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