China takes more measures to support the real estate sector

China announced reductions in mortgage interest and the down payment required to purchase homes to promote the “stable and healthy development” of a real estate sector plunged into a major crisis for more than two years.

The measures, which will enter into force on September 25, were announced last night in various statements released by the People’s Bank of China (BPC, central bank) and the new financial sector regulator, the National Administration for Financial Regulation (NAFR).

Among them, a reduction of up to 20% of the minimum entry that must be provided by those who wish to purchase their first home, and 30% for those who buy a second, stands out.

In addition, for the latter the mortgage interest rate will be reduced, which will go from the current 60 basis points above the reference rates of the central bank (LPR) to 20, while for first-time home buyers it will remain at 20 points. basics below that rate.

“Lowering interest rates on existing home loans will save borrowers spending on interest payments, helping to increase consumption and investment”, indicated the BPC and the NAFR.

Last week, the authorities announced measures to increase the number of people who can be considered first-time homebuyers, a definition in which local governments will now also be able to include those households in which there is at least one member who does not own a property. in their name, regardless of whether the family had previously applied for a mortgage.

The Hong Kong newspaper South China Morning Post warns today that these measures could put even more pressure on the large Chinese state banks, which are already reducing the returns on their deposits to face the current situation.

According to an ANZ report echoed by the aforementioned newspaper, Chinese banks will cut rates on 16 trillion yuan (US$ 2.2 trillion, 2 trillion euros) of mortgages for first homes, which will help households save up to 109,000 million yuan (US$15,014 million, 13,846 million euros) in interest.

One of the major factors slowing down the Chinese economy is the crisis in the real estate sector, whose weight on the national GDP -adding indirect factors- was estimated at around 30%, according to some analysts.

Many companies in the sector began to present liquidity problems in 2021 after the limitations imposed by Beijing on their ability to finance themselves through leverage, and the consequent mistrust of potential buyers resulted in a slowdown in the market and a worrying drop in prices due to the fact that Housing is one of the main investment vehicles for Chinese families.

In the first half, investment in real estate development fell 7.9% after falling 10% last year, while commercial property sales measured by land area fell 5.3% after plummeting 24.3% in 2022.

Given the situation, the Government has announced various support measures in recent months, with state banks also opening multimillion-dollar lines of credit to various developers, whose priority objective has been the construction and delivery of developments sold off-plan .

Recently, the authorities announced that they would prolong the package of support measures and promised “adjust and optimize” the measures on the sector after recognizing “important changes” between supply and demand in the real estate sector.

Source: EFE