China has announced a series of measures to support the real estate market, ranging from relaxing down payments and cutting housing loan interest rates to reducing housing inventory. Industry insiders said the sweeping measures mark an unprecedented move in the past few decades, which could promptly reverse a property downturn and fuel a full-fledged rebound across the housing sector. The People's Bank of China (PBOC) and the National Financial Regulatory Administration (NFRA) announced that the minimum down payment ratios for individuals' commercial housing mortgages will be lowered to 15% for first-home purchases, down from the previous 20%, and to 25% for second-home purchases. “This is the lowest down payment ratio in history, the slackest policy in the history of mortgage lending, and the most lenient property policy in recent years,” Yan Yuejin, Research Director at Shanghai-based E-house China R&D Institute, told the Global Times.
Authorities also announced the establishment of a CNY300 billion re-lending facility for affordable housing to encourage financial institutions to support local State-owned enterprises in acquiring unsold completed commercial housing at appropriate prices to be used as affordable housing. The special loans will be offered to 21 national lenders, from policy banks to state-owned commercial banks and joint-stock banks, at a rate of 1.75%, according to Tao Ling, Deputy Governor of the People’s Bank of China (PBOC).
The new measures include the most significant move in down payment policy relaxation for China's housing sector, he said, fully demonstrating that the country attaches great importance to property destocking and supports reasonable housing consumption demand, including for basic and upgraded housing. With regard to mortgages, China's central bank said that it would lower the interest rate for housing provident fund loans by 0.25 percentage points for both first-time and second-time homebuyers from May 18. The housing provident fund is a long-term housing savings plan made up of compulsory monthly deposits by both employers and employees. It can only be used by employees for house-related expenses. Authorities also announced the abolition of the floor of the interest rate for individuals' commercial housing loans for first and second homes across the country. Central bank branches can determine the lower limits of commercial mortgage rates in accordance with local conditions, and financial institutions should set the floor lending rates based on their business conditions and borrower risks, the central bank said. “In the past, the lowest housing loan interest rate in some cities was 3.5%, but under the current policy, banks can decide the interest rate themselves, and even an interest rate below 3% is possible," Yan said.
Chinese Vice Premier He Lifeng said that local governments of regions where there are relatively large commercial housing stocks are allowed to buy some homes at reasonable prices and provide them as affordable housing. He made the comments at a teleconference focused on ensuring the delivery of housing projects. Previously, some localities in Hangzhou, Zhejiang province and Dali, Yunnan province, have been trialing a pilot program under which authorities would be encouraged to purchase residential units in excessive supply for use as public rental housing or guaranteed housing. Authorities in Hangzhou, the capital of Zhejiang province, are planning to buy homes and rent them at affordable rates, to reduce inventory and boost sales. The move will be implemented by the city’s Linan district, which plans to acquire a total of 10,000 square meters, with flat sizes not exceeding 70 sq m, the first such move by a local government after the country’s top decision-makers pledged last month to reduce inventory and boost sales. The total floor area to be bought will be capped at 10,000 sq m, and selected developers will not be allowed to sell on the open market.
Observers expect this set of ground-shaking tools to have a far-reaching impact on the property industry, which has been under strain since 2020. “The positive impact will reverberate across every sector, from elevating market transactions and boosting homebuyers' confidence to improving property developers' liquidity and driving equities of property-related industries,” Yan stressed. Stocks related to real estate immediately rose after the announcement of the measures, with several rising to the daily limit. The Shanghai Property Index rose by 3%.
China’s real estate market is expected to become fully stabilized in the second half of 2024, ending a three-year adjustment period, if the latest rounds of highly supportive policy measures are well implemented to boost homebuyer confidence and ease liquidity stress among developers, experts said. They also expect restrictions on housing purchases and loans will be gradually phased out, while more policy measures may be needed to reinforce market expectations and accelerate recovery of the sector.
This overview is based on reports by the Global Times, the China Daily and the South China Morning Post.
