Four state-run banks on Thursday announced adjustment for rules governing first-home mortgage rates as widely expected by the market, acting as part of the country’s ramped-up efforts to bolster the stagnant property sector.
The Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China, and Bank of China issued their separate statements on mortgage rates reduction, which will take effect on September 25 when banks and borrowers will be encouraged to negotiate a rate change, or a swap for a new loan.
The adjustment of existing mortgage rates for first-homes represented a bold move in terms of policy innovation, which is expected to move market dynamics, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Thursday.
“On the surface, the adjustment seems to prevent increase of early repayments, but in fact, it shows the government’s support for the property sector’s growth. With a reduced monthly payment thanks to low rates, the balance on people’s bank account will accordingly increase, as will their spending power,” Yan said.
A recent analysis report by investment bank China International Capital Corp (CICC) forecast that the average reduction for first-home mortgage rates would be 50 basis points, which could translate to economy-wide savings of 200 billion yuan ($27.31 billion), the value of which accounted for 0.5 percent of the total retail sales in China last year.
As of the end of June, Chinese lenders held 38.6 trillion yuan in outstanding individual mortgage loans.
The cut on existing first-home mortgage rates together with the easing on home purchase restrictions in major cities in China is likely to enhance market confidence and expectations in the property sector, Yan added.
On Friday, Beijing and Shanghai eased mortgage rules to stabilize the real estate sector, two days after Guangzhou and Shenzhen announced similar adjustments. The four cities are marked as China’s four tier-one cities where property sale policies tended to be the strictest in terms of home purchase.
Also last week, China’s top financial regulators including the People’s Bank of China (PBC), the central bank, and the National Administration of Financial Regulation (NAFR) issued a notice to lower down payments for both first- and second-time home-buyers, while further cutting interest rates on existing mortgages, aiming to better meet housing demand and promote the healthy and steady development of the real estate market.
The minimum down payment ratios for first-home and second-home purchases nationwide will be no less than 20 percent and 30 percent, respectively, down from 30 percent and 40 percent previously, according to the notice.
The roll-out of supportive measures comes amid the fizzling of China’s property sector that entered a downward spiral post-pandemic. And, 2022 marked a tough year for the sector, witnessing property investment fall 10.0 percent on a yearly basis, the first decline since records began in 1999.
According to the meeting held by the Political Bureau of the Communist Party of China (CPC) Central Committee in July, it called for adaption to a new situation that major changes have taken place in the relationship between supply and demand in China’s real estate market.
With an array of optimized measures being put in place, the property sector will soon achieve soft landing, which is of great significance to stabilizing economic growth and defusing risks in the remainder of the year, experts said.
Tian Yun, an independent macro analyst, told the Global Times that the sector is likely to return to the path of recovery by the third quarter of 2024.
(Global Times)
