In order to raise home prices ahead of the customary high period in late September and October, China’s economic officials have decided to reduce transaction numbers and mortgage interest rates for consumers.
According to a joint statement released by the People’s Bank of China( PBoC ) and the National Administration of Financial Regulation( NAFR ), the minimum down payment ratio for first-time homebuyers will be lowered from 30 % to 20 % and that for second, time buyers, it will decrease from 40 % to 30 %. & nbsp,
The minimum and nbsp mortgage rate for second-time homebuyers is set at 20 basis points higher than the loan prime rate( LPR ), which is the same as the initial rate. A schedule point is one tenth of a percentage point.
Analysts claimed that the new regulations, which went into effect on Friday, may help entice new homebuyers to enter the industry in first – and second-tier places, but not in lower tier people. Additionally, they claimed that the procedures would harm Chinese banks’ profit margins.
On Friday, A-shares of the Bank of China fell 1.07 % while Industrial and Commercial Banks’ shares fell 1.08 percent. China’s Agricultural Bank experienced a 0.58 percent decline. As a super storms known as Saola approached the capital, Hong Kong’s stock markets shut down.
The Shanghai Composite Index increased by 0.43 % on Friday to close at 3, 133. & nbsp, It came after the Caixin / S & amp, P Global manufacturing purchasing managers’ index( PMI ) rose from 49.2 in July to 51.0 in August, surpassing analysts’ predictions of 48.1 and representing the highest reading since February. A reading above & nbsp, 50, indicates expansion, whereas a reading below & bnp.50 indicates contraction.
In the meantime, the PBoC announced its intention to release liquidity totaling about$ 16.4 billion into the banking system by reducing foreign exchange reserve requirement ratios( RRRs ) by 200 basis points from 6 % to 4 %. & nbsp,
On September 15, the RRR cut, which supports the Chinese yuan and is targeted at & nbsp, will go into effect. & nbsp,
As of late August, Renminbi had depreciated by 5.3 % this year, reaching a value of about 7.29 yuan to one US dollars. The price of the currency increased by 0.4 % to 7.26 on Friday.
First payment
Besides their Thursday night speech on changes in lower payments and rates, the PBoC and NAFR said in another assertion that first – time homebuyers who had already borrowed mortgage loans before August 31 can restructure their rates with banks starting September 25.
” Many of the existing homeowners, who are having their mortgage rates at 5 – 6 %, will be entitled to slash their rates by more than 100 basis points”, said Zhang Dawei, chief analyst at & nbsp, Centaline & nbsp, Property Agency Ltd.” People who borrowed one million yuan ( US$ 137, 798 ) for 30 years can lower their monthly mortgage payment by 839 yuan from 5, 995 to 5, 156 yuan”.
Tang Guanghua, head of research at Shenyin & amp, Wanguo Futures Co Ltd, said the average interest rate on mortgage loans borrowed in the first half of this year is 4.18 %, compared with 5.15 % for those borrowed between 2019 and 2022. Tang said mortgage & nbsp, deals involving about 25 trillion yuan, or two – third of all the outstanding mortgage loans of 39 trillion yuan, will have to be renegotiated.
An unknown director for the PBoC told the media that the mortgage rate reduce will not only help homeowners save money, it will also prevent people from making first repayment, a problem that has troubled Chinese banks over the past two years. & nbsp,
Economic experts said since China’s home bubble burst in late – 2021, Chinese banks have slowly lowered their loan rates. They said many owners who were taking out mortgage loans at levels of around 5.8 % two years ago wanted to repay their loan debts earlier as they were angry that they could not like the lowered prices, which are close to 4 %.
They also pointed out that two years ago, people was like an interest rate of 6 – 10 % by investing in money management goods in China and use this income to pay their loan. They said that, with the yields of most success control products now falling below the mortgage rates, many people prefer to have early payments.
” Some Chinese lenders are very concerned about this flood of early payment”, He Yi, a Beijing – based financial journalist, says in an article published earlier this year. & nbsp,” Loan loans are one of the highest value property for lenders. A big wave of early payment will make lenders drop their high – quality property”.& nbsp,
He said many people seeking to make early repayment were asked by their & nbsp, businesses to go to their branches. He said some folks had waited for several weeks before their apps were handled.
” In the first quarter of 2021, individuals were also queuing up in front of banks to borrow loan money but now they are queuing up for payment”, He said.
The PBoC suddenly announced on Thursday that people could revise their loan deals with bankers from September 25. It means people will finally enjoy lower mortgage rates and be less determined to have early settlement.
Home and regional debt problems
Since April, the & nbsp, situation of China’s home markets has deteriorated as property developers cut selling prices to boost sales and replenish their cash for debt repayment. However, as more people experience unpredictable income, the total demand for real estate has decreased.
According to the National Bureau of Statistics( NBS ), 44 of China’s 70 largest cities saw year-over-year declines in new home prices in July. Out of the 70 locations, 42 saw a decrease in the cost of new homes in June.
It will be more challenging for property programmers to improve their financial situations as a result of the nation’s declining real estate prices, according to some academics. They claimed that the real estate problems would also depress property sale markets and exacerbate local governments’ debt issues.
They claimed that raising house prices and boosting homebuyer trust are the only ways to put an end to both problems.
According to Tang, the most recent reduction in maximum down payment ratios will help stabilize the real estate industry and drive up house prices in first – and second-tier places.
However, it is still unclear whether this action will increase real estate prices in lower-tier places. & nbsp,
In fact, early this year, Heze, a prefecture-level city in Shandong province( a fourth-tier city ), lowered the minimum down payment ratios for first-time homebuyers from 30 % to 20 %. However, the action did not have any impact.
Many real estate developers have reduced their selling prices by hundreds of thousands or even millions of renminbi, but their sales have not increased. A Hunan-based house author claims in an article that a decrease in the lower payment ratio will have no effect. All consumers are aware that if they make a down payment of 20 % rather than 30 %, they will eventually have to pay more attention.
He claims that many homebuyers won’t provide the markets until house prices start to rise once more.
Read: China’s corporate earnings are harmed by home and regional debt.
@ jeffpao3 Follow Jeff Pao on Twitter at & nbsp.