Mortgage rate cut to boost property market
Print Edition
CHINA yesterday announced a cut in mortgage rates and minimum down payment levels for some home buyers in one of its biggest moves this year to boost an economy increasingly threatened by a sagging housing market.
The relaxation of lending rules, for the first time since the 2008 global financial crisis, was accompanied by measures to increase financing for cash-strapped developers, who may have problems paying debts if the property downturn persists, as many economists expect.
China’s central bank announced the relaxation after banks in some cities had already adjusted policies to grant more home buyers lower interest rates.
Buyers who own a home and had paid off their mortgage will be considered first-home buyers and enjoy discounted mortgage rates of as much as 30 percent off the benchmark lending rate, the People’s Bank of China said.
Previously, they had to pay 10 percent or more above the benchmark.
In cities where there is no limit on the number of homes people can buy, banks can lend to buyers already owning a number of homes if they have cleared previous mortgages.
They were previously not eligible to get mortgages from banks.
This will be applied in 42 of 46 cities where the governments have canceled home purchase limits applied in 2011 to control home price surges.
Only Shanghai, Beijing, Guangzhou, and Shenzhen are still banning residents from buying a home if they already own two or more homes.
In terms of down payments, the new rule is that all first-home buyers can pay as little as 30 percent of the total price, and for multiple-home owners banks can decide the down payment level “cautiously.”
The original rule stated a buyer of a second home was subject to a minimum down payment that could be up to 70 percent.
The property market has been undergoing its worst downturn in two years and has dragged an already slowing economic growth in China.
Prices have been falling for the fourth consecutive month in August, the National Bureau of Statistics data showed.
“It is an almost inevitable choice regulators can make to stabilize the economy while meeting people’s real consumption needs,” said Yang Hongxu, vice director at E-House China R&D Institute, a property service provider and research body. “The relaxation has not deviated from the government’s original intention of supporting real needs while curbing speculation.”
Wang Tao, chief China economist of UBS, said last week that relaxing mortgage rules across China is a compromise the government can make to boost the property sector without causing an overall price rebound.
The central bank also encouraged banks to lend to property developers with commercially viable projects and allowed them to issue bonds to raise the money needed to lend to buyers.
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