On May 17th, the People’s Bank of China (PBOC) released three major measures to stabilize the real estate market, including lowering the minimum down payment ratio for personal housing loans, lowering the interest rates for individual housing provident fund loans, and eliminating the policy floor for interest rates on first and second home commercial personal housing loans nationwide.
Starting from May 18th, the PBOC will lower the interest rates for individual housing provident fund loans by 0.25 percentage points. The interest rates for first-time homebuyers with loan terms of 5 years and below will be adjusted to 2.35%, and for loan terms of over 5 years to 2.85%. For second-time homebuyers, the rates will be no less than 2.775% and 3.325% respectively.
The PBOC and the China Banking and Insurance Regulatory Commission announced adjustments to the minimum down payment ratio policy for personal housing loans. The minimum down payment ratio for first home commercial personal housing loans is set at no less than 15%, and for second home loans it is set at no less than 25%.
Additionally, the PBOC issued a notice to adjust the interest rate policy for commercial personal housing loans, canceling the policy floor for interest rates on first and second home commercial personal housing loans nationwide.
Some real estate agents and internet users believe that the government’s market rescue efforts will continue. For example, a real estate agent from Hebei expressed that mortgage rates will further decrease and that the actions to support the market will not stop with these measures.
In response to the policies, there are concerns raised by netizens about who will benefit from the new policies. Questions arise regarding whether those who already have existing loans or those who have taken out provident fund loans will be able to enjoy the benefits.
The move to lower down payment ratios has sparked discussions among the public about whether this signals an endless cycle of rate cuts in the Chinese real estate market.
One individual highlighted the implications of the lowered down payment requirement, allowing individuals to leverage more in buying properties. It raises concerns about the potential risks associated with increased borrowing and the government’s urgency to stimulate the real estate sector.
Leveraging involves using borrowed capital (such as loans) to increase purchasing power for real estate. This approach allows individuals to acquire properties of higher value or more properties, but it also increases financial risks if property values decline or if income is insufficient to cover loan obligations.
The adjustments to commercial loan rates are seen as minimal, with the lowered interest rates for provident fund loans likely to spur a new wave of homebuyers. While this may boost housing market activity in the short term, doubts remain about the sustainability and stability of the market.
Critics question whether the reduction in down payments is driven by a lack of funds among potential buyers. A lowered down payment means an increase in monthly mortgage payments, raising concerns over affordability in the long run.
Recent challenges in the Chinese real estate market, including developers facing debt crises, have prompted the government to intervene by implementing measures to alleviate inventory pressure and support the sector’s stability.
During a press briefing held by the State Council on May 17th, the PBOC announced the establishment of a 300 billion yuan guarantee for housing refinancing, aimed at supporting state-owned enterprises in acquiring unsold properties at reasonable prices.
The refinancing scheme includes a 1.75% interest rate over a 1-year period, extendable up to 4 times. The program targets national banks, including policy banks, commercial banks, and postal savings banks, with the PBOC supplementing 60% of the loan principal, potentially injecting 500 billion yuan into the banking system.
Despite these initiatives, a report by Goldman Sachs highlighted a 4 trillion yuan funding gap for private real estate developers in completing pre-sold housing units, exacerbating the challenges faced by the market.
Official data released by the Chinese government revealed price declines in 64 out of 70 major cities in April, surpassing the number of cities experiencing price drops compared to March.
Economic indicators from the National Bureau of Statistics showed widespread price declines in both new and existing homes in first-tier cities in April, with new home prices experiencing the sharpest decline in over nine years.
As the Chinese government continues to navigate the challenges in the real estate market, these latest policies are part of a series of efforts aimed at sustaining growth and stability in the housing sector.