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China’s policymakers are in a rush to get buyers back into the property market by lowering lending rates and relaxing mortgage terms, with the related goals of keeping developers rolling and boosting (a pillar of the economy), advisors told MNI, with some suggesting delaying pilot plans for property taxes.
“The People’s Bank of China may further cut the five-year Loan Prime Rate, which many lenders base their mortgage rates on, by 5 to 10 basis points in Q1, possibly in late March before the Federal Reserve’s expected interest rate hike,” said Wang Jun, an academic committee member at the China Center for International Economic Exchanges.
Wang, who is also the chief economist at Zhongyuan Bank, believes more easing of housing regulations are necessary to prevent a “hard landing” of the real estate sector.
The PBOC (cut the one-year LPR) by 10 bps last week, but made a smaller, 5 bps cut to the five-year one for the first time in about two years. The cuts are part of a broader monetary easing underway in what is seen as a window before the U.S. Fed likely acts in March, which would highlight diverging monetary policies between the world’s top two economies.
Though Yan Yuejin, director of E-house China Research and Development Institution, sees limited downward space for the five-year LPR, as the recent smaller cut signals cautiousness to avoid stoking the property market.
BANKS GET IN LINE
Commercial banks in fifty-nine out of 103 key cities responded to the PBOC, lowering mortgage interest rates in January, with the average rate falling and lending cycle quickening back to a normal level in mid-2021, according to Beike Research Institute.
Wang noted that conditions for property markets could ease further during the National People’s Congress in March when fresh policy signals are released. While property developers like China Evergrande Group have struggled to repay bond interest and principal in some cases, policymakers see these as individual cases and not systemic, he said.
“There could be some more default risks by private developers this year,” said Wang, noting a repayment peak of developers’ overseas bonds in Q1. More state-owned developers will play the role of “white knight” to tame risks, said Wang, adding that the PBOC has claimed support for mergers and acquisitions of property projects between developers.
A LIGHT HAND ON LENDING
Yan expects banks to keep mortgage lending robust in term of quotas, rates, and the approval process. The PBOC this week urged lenders to prioritize credit growth with an "all-out" effort to achieve a good start in Q1 to support the “reasonable” financing needs of real estate developers and better meet home purchase demand.
Though any relaxation of home purchase limits in China’s four tier-one cities is unlikely given to Beijing’s resolution to crackdown on housing speculation, Yan added.
“They may increase policy support for talents (skilled workers) and families with two or three children in home purchasing,” Yan said. But apart from tier-one cities, Yan said in addition to some marginal loosening on home purchase and loan limits, there could be a more comfortable “down payment ratio.”
Prospective home buyers are looking for a floor on prices but are also concerned about whether an expansion of (property tax pilot programmes) will move ahead. A tax for the capital was highly anticipated last year amid Beijing’s push to promote “common prosperity” and slated to expand to more cities soon.
Yan expects the pilot list can be released as early as in Q1. But Wang said the property markets are far from stabilizing and may continue to dip in Q1.
Wang pointed to still falling indicators of home sales, land sales and new project starts. Real estate investment fell 13.9% y/y in December, widening from November’s 4.3% decline.
“Piloting property tax should wait till the market significantly recovers, possibly in the second half,” said Wang, suggesting next year may be better timing given the current economic headwinds.
Zhang Yiqun, director of a fiscal studies institute affiliated with Jilin province's finance department, agreed that the pilot programme can be postponed.
“Who knows whether it will be the last straw that broke the camel’s back,” said Zhang, noting that top policymakers earlier called for a refrain from any steps contractionary to economic stability.
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