CHINA unveiled its biggest package yet to shore up its beleaguered property market, lowering borrowing costs on as much as US$5.3 trillion in mortgages and easing down-payment requirements for second home purchases to a historical low.
The People’s Bank of China (PBOC) will cut outstanding mortgage rates for individual borrowers by an average of 0.5 percentage point, governor Pan Gongsheng said on Tuesday (Sep 24).
The minimum down-payment ratio on second home purchases will be lowered to 15 per cent from 25 per cent.
The plan, confirming earlier reports by Bloomberg News, underscores Beijing’s urgency to stem a housing-led slowdown in Asia’s largest economy as it faces the prospect of increasing protectionism and a shaky global outlook.
The moves comes as economists at banks including UBS Group, JPMorgan Chase and Bank of America predicted that China will fall short of delivering on its growth target this year.
A Bloomberg Intelligence gauge of Chinese property developer shares rose as much as 4.9 per cent on Tuesday morning before paring the gain to 1.5 per cent as at 10.10 am. The index has slid 33 per cent from this year’s high in mid-May.
A NEWSLETTER FOR YOU
Tuesday, 12 pm
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
“This package is China’s biggest and widest supporting measures on home loans yet, as it covers both new home-buying and outstanding purchases,” said Yan Yuejin, vice-president of Shanghai E-house’s research arm.
Policymakers have taken forceful steps to lower financing costs this year including scrapping a central government-guided mortgage rate floor for first home purchases.
But such moves have mostly benefited new property buyers, exacerbating the disparity with existing homeowners that has driven a wave of early mortgage repayments and strained lenders in recent years.
Currently, existing mortgages carry an average interest rate of about 4 per cent, compared with 3.2 per cent on newly-issued loans for a first home and 3.5 per cent for a second home, according to data compiled by China Real Estate Information in late August.
The move will ease mortgage burdens an estimated 150 million people, cutting their annual interest expenses by about 150 billion yuan (S$27.5 billion), Pan said.
While China has pushed average mortgage costs to a record low this year, most households have not benefited because banks will not reprice existing loans until next year.
Still, it will likely add pressure on the nation’s biggest banks, which have been struggling with record low margins, sinking profits and rising bad loans.
Pan noted that the new round of interest rate adjustments will have a neutral impact on bank profits and margins, given that more funding is freed up and deposit rates will follow suit. Officials also announced on Tuesday that they would add capital to the largest lenders.
Banks have resorted to multiple deposit rate cuts to mitigate the impact of lower loan rates. Combined profits at China’s commercial lenders rose 0.4 per cent in the first half, the slowest pace since 2020, according to official data.
The sector’s net interest margins have continued to decline, hitting a record low of 1.54 per cent at the end of June, well below the 1.8 per cent threshold regarded as necessary to maintain reasonable profitability.
The reduction to the minimum down-payment ratio for second-home buyers follows a sizeable cut to 25 per cent in May. Top regulators have said that China will support homebuyer demand to upgrade to bigger homes.
The country’s real estate crisis is now into its fourth year with no signs of letting up. The slump in home sales deepened in August as the impact of policy loosening measures waned and buyers were deterred by expectations for prices to keep falling. BLOOMBERG
