China to ease floor on mortgage rates to revive housing sector, Real Estate News, ET RealEstate

BEIJING (Reuters) – Chinese local governments could gradually ease the floor on mortgage rates for first-time buyers in some cities, the central bank said on Thursday, in a bid to support house prices and kick-start a growing engine. outage of the second largest in the world. economy.

Localities would be allowed to decide whether to maintain, lower or remove the floor for such buyers by the end of 2022, the People’s Bank of China (PBOC) said in a statement posted on its website.

China is trying to tackle a deepening housing crisis – a major drag on the economy as homebuyers refuse to make mortgage payments on unfinished buildings and financial constraints from developers further hurt the economy. confidence in the sector.

In May, the central bank lowered the floor on mortgage rates for first-time buyers to 20 basis points below the prime loan rate (LPR) of similar maturity. The 5-year LPR, the benchmark reference rate for mortgages, stands at 4.30%.

For cities where the selling price of new commercial residential housing fell month-over-month and year-over-year between June and August 2022, the lower limit on the mortgage rate would be eased, said the central bank.

“The introduction of such policies and measures is conducive to helping city governments make full use of the policy toolkit to promote the stable and healthy development of the real estate market,” the central bank said.

Banks and customers can negotiate to determine the specific interest rate for new home loans to reduce borrowers’ debt burden and better support housing demand, the central bank added.

Of the 70 cities surveyed by the Chinese Bureau of Statistics, 23 saw new home prices post consecutive declines in monthly and annual terms between June and August.

Eight were second-tier cities, including Tianjin and Wuhan. The other 15 were third- and fourth-tier cities, such as Dali in the southwest of the country and Guilin in the south.

Although overall demand remained sluggish, more than 200 cities, mostly small towns, took steps to support the struggling real estate sector after a bank deleveraging campaign that began in mid-2020 triggered defaults. bonds by developers and a drop in sales.

Shares of Chinese developers edged higher on Friday in the face of a broader market weakness, with an index measuring property companies listed on the mainland up 0.6% at 02:25 GMT, while the benchmark lost 0. .7%.

Analysts said the easing of the mortgage rate floor was positive for sentiment, but more stimulus was needed.

“We may see more local governments loosen their local housing policies in the coming months, but a meaningful recovery in the real estate sector should take more political effort and time,” Goldman Sachs analysts said in a statement. research note.