MNI: China To Maintain Housing Stimulus, Lift Loan Appetite

China will likely implement further property sector support, such as lower mortgage rates, to maintain the momentum of an expected sales rebound over the next few months driven by already announced easing measures, as policymakers aim to leverage household savings before resorting to any large-scale state acquisitions, advisors told MNI.

Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute, called for further mortgage rate reductions to boost credit appetite of potential homebuyers. The People's Bank of China will likely cut the reserve requirement ratio or the rate of the medium-term lending facility soon to release low-cost funds and drive banks to lower both new and existing mortgage rates, Li predicted.

The interest rate for first-time home loans has declined to 3.2-3.5%, and 3.5-4% for second homes. Both rates have dropped by about 200 basis points in the past two and a half years, leaving limited room for significant reductions in the near term amid sharply falling net interest margins of banks.

But for existing mortgage rates in most second-, third- and fourth-tier cities, which currently fall between 3.15-3.63%, Li estimated that room remains for another roughly 80bp downward adjustment in the near term.

LOWER DOWN PAYMENTS

Xie Yifeng, dean at the China Urban Real Estate Research Institute and a housing ministry consultant, noted authorities had already relaxed housing loan policy more than during the 2008 financial crisis and 2016’s destocking cycle.

Most major cities lowered down-payment ratios and mortgage rates last week in line with the PBOC’s new low of 15% for first-time buyers set on May 17. Shanghai and Shenzhen lowered deposits to 20% from the previous 30%, while Beijing maintained its 30% minimum.

Xie said this will create demand among first-time buyers, targeting “new citizens” or population inflows to big cities, alongside upgraders as the PBOC also lowered the minimum down payment for second homes to 20%.

The unexpected move to allow borrowing to buy a third house in non-restricted areas of Guangzhou, compared to the previous full-payment requirement, will also attract some high-income buyers wanting to invest, Xie added.

“This round of stimulus should lead to a phased recovery,” he argued, adding further measures are likely before the traditional September to October buying season should momentum falter.

Authorities still have plenty of policy options, Xie continued, suggesting they could reduce stamp duty, deed and value-added tax next.

However, he doubted authorities would scrap purchase limits in first-tier cities’ core areas within the year. Policymakers remain wary about the attractiveness of mega cities, which would jeopardise their population control targets, overdraw demand from nearby cities, or fan speculation, he said.

LAST RESORT

The mid-May rescue package also included a PBOC CNY300 billion re-lending facility to fund bank loans for local state-owned enterprises charged with buying up completed-but-unsold housing stock. (See MNI EM: Beijing Called On To Buy Housing Stock Over Local Govs)

Xie said the lack of supporting measures which clarify funding sources, purchase prices and acquisition standards of housing will delay implementation. “It requires price recognition among SOEs, developers and banks, while setting the price too high or too low could affect bank’s risk assessment and cause state-owned asset loss,” he continued.

Beijing will likely not set up a nationwide central government-led acquisitionplatform in the near-term, Xie argued. “This should be the last resort given to its complexity, unless acquisition by local authorities and demand-side stimulus fails to exert,” he added.

Xie noted that there is growing expectation for the market to stabilise this year should at least 60-80% of all the bailout measures be implemented and gradually bottom out over the next few years, or around 2028 at the latest.