6 Jun 2024
On 17 May, Chinese government announced a slew of property policy measures, including easing mortgage rules and encouraging local governments to buy unsold commodity housing, to address current housing issues. This came against the backdrop of ongoing liquidity stress of the property developers amid lacklustre housing market recovery so far this year.
The People’s Bank of China (PBoC) issued three important notices: (1) removing the lower bound of the mortgage loan interest rate policy; (2) reducing the provident fund loan interest rates, and (3) lowering the down payment ratios by 5ppts for the first and second residential home purchases. The package of policies is aimed at alleviating home purchase costs and stimulating housing demand.
While down payment ratios are now at historical lows, perhaps more importantly, local branches of the PBoC and National Financial Regulatory Authority (NFRA) can set the minimum down payment ratios for commodity residential housing according to local conditions. This development has granted local authorities more discretion to implement “one city, one policy”.
New home sales and property investment are unlikely to rebound immediately; however, alongside still-resilient sales data for new homes and second-hand homes in large cities, the measures should help to stimulate demand. And with officials providing repeated assurances on home deliveries, potential homebuyers may be encouraged to re-enter the market.
On April 30, the Political Bureau meeting proposed to do “coordinated research on policies and measures to digest real estate inventory and optimise housing supply”. In recent months, trials began and some local governments purchased commodity housing to convert into public rental housing but these efforts were often limited in scale and lacked nationwide policy direction.
The central government has now proposed that local governments can acquire idle residential land and unsold homes at “reasonable prices” directly from property developers. We think this will help ease developers’ liquidity stress amid the lack of improvement in new home sales.
Local governments will take the lead and direct local state-owned enterprises (SOEs) to purchase completed yet unsold commodity housing and then to convert into affordable housing. The PBoC announced a new monetary policy tool for such activities, namely, a re-lending scheme to provide one-year loans to commercial banks at an interest rate of 1.75%, if they extend loans to SOEs conducting home purchases on behalf of local governments. The scheme funds 60% of the principal so it can support up to RMB500bn funding.
On one hand, some existing monetary policy tools have been underutilised, so the effectiveness remains uncertain. On the other hand, the stimulus could stand a better chance of success given the bolder and larger scale effort. But we think this is just the beginning and policymakers are approaching the property market with a heightened sense of urgency. Stay tuned.
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