China’s central bank, the People’s Bank of China (PBOC), announced plans to reduce mortgage rates on existing home loans by the end of October.
This move is part of broader efforts to boost the struggling property market and stimulate the economy, which has been hit by slow growth and weak consumer demand. Commercial banks will lower interest rates by an average of 50 basis points, with rates set at least 30 basis points below the Loan Prime Rate (LPR), the central benchmark for mortgages.
The mortgage rate cuts come alongside easing home purchase restrictions in key cities. Shanghai, Guangzhou, and Shenzhen have all announced measures aimed at encouraging property sales. Shanghai, for example, reduced the down payment requirement for first-time homebuyers to 15% from 20% and lowered the threshold for non-local buyers to purchase homes by shortening the required period of social security payments from three years to one. Additionally, Shanghai will allow non-residents to purchase the same number of properties as local buyers.
These policy changes reflect the Chinese government’s urgent efforts to stabilize the real estate sector, which once contributed over a quarter of the country’s GDP but has faced a severe downturn in recent years. The easing of restrictions and mortgage rate reductions are part of a wider stimulus package announced in September, which includes lowering down-payment requirements and making refinancing options more accessible.
Despite these efforts, the property market continues to face significant challenges. New home prices in China fell in August at the fastest rate in nine years, and property sales have declined by 18% in the first eight months of the year. The PBOC aims to address this decline by reducing the financial burden on existing homeowners, thereby boosting domestic consumption and overall economic growth.
While some analysts believe these measures will provide a stabilizing effect, there is caution about their overall impact. Many smaller cities have not seen significant results from similar policies, and some experts believe more aggressive fiscal measures may be required to fully revive the property sector. Nevertheless, shares of Chinese property developers have surged in response to the easing measures, signaling optimism among investors.
