China continues to roll out more stimulus measures, with a slew of actions announced at national and local government levels on Sunday evening to help mortgage holders and property companies.
Not only did the People’s Bank of China (PBOC) reveal that it would instruct banks to lower mortgage rates by the end of October, but it also made a more significant decision regarding property developers.
The PBOC stated it would extend supportive measures for developers’ real estate development loans and trust loans until the end of 2026 to better fulfill their financing demands.
In other words, struggling developers will have more time to arrange funds and will find banks to be far more accommodating, especially in financing potential buyers and existing mortgage holders.
Last week, the PBOC announced two measures totaling more than $114 billion to help companies raise new funds to finance new assets or to manage assets for capital deals or swaps.
Guangzhou’s administration also announced on Sunday the lifting of all restrictions on home purchases, while Shanghai and Shenzhen said they would ease restrictions on housing purchases by non-local buyers and lower the minimum down payment ratio for first-time homebuyers to no less than 15%.
Foreign news agencies reported that the PBOC would instruct commercial banks, in batches, to reduce interest rates on existing mortgages to no less than 30 basis points below the Loan Prime Rate, the central bank’s benchmark rate for mortgages (the one-year Loan Prime Rate is 3.35%, while the five-year rate is 3.85%).
These changes are expected to reduce existing mortgage rates by about 50 basis points on average. The cuts aim to support existing mortgage holders, as previous reductions primarily benefited new home buyers.
The mortgage rate cuts set out by the central bank aim to ease the burden on homeowners and stimulate the property market amid weak domestic consumption.
“As market-oriented reforms on interest rates continue to deepen, and as the supply-demand relationship in the real estate market undergoes major changes, the current mortgage rate pricing mechanism has exposed some shortcomings,” the PBOC said in its statement.
“With the public showing strong responses to the situation, the mechanism needs urgent adjustments and optimization,” the PBOC added.
China’s four largest state-owned banks, including Industrial and Commercial Bank of China Ltd. and China Construction Bank Corp., have stated they would actively respond to the policy and promote the orderly adjustment of existing mortgage interest rates.
CNBC reported that most local governments, except for some megacities including Beijing and Shanghai, have already eliminated floors on mortgage rates.
