China has unveiled its largest package yet to revive its struggling property market. Key measures include reducing mortgage rates by 0.5 percentage points for existing borrowers and lowering the minimum down-payment for second homes to 15%. This move aims to ease the financial burden on an estimated 150 million people and stimulate housing demand. The package comes as major financial institutions predict China will miss its growth targets. While these measures are expected to boost the property sector, they may pressure banks already facing low margins and profits. The real estate crisis, now in its fourth year, continues to challenge China's economic stability despite these efforts.
China has unveiled its most significant package yet to bolster its struggling property market. The measures include reducing mortgage rates and easing down-payment requirements for second homes, aimed at revitalising the housing sector and stimulating economic growth. The People's Bank of China announced a 0.5 percentage point cut in existing mortgage rates for individual borrowers. Additionally, the minimum down-payment for second home purchases has been lowered to 15% from 25%. These moves highlight Beijing's urgency to address the housing-led economic slowdown, especially in light of increasing global protectionism and economic uncertainty.
The package comes as major financial institutions like UBS Group AG, JPMorgan Chase & Co, and Bank of America Corp predict China will miss its growth targets this year. In response to the announcement, a Bloomberg Intelligence index of Chinese property developer shares initially rose by 4.9% before settling at a 1.5% gain. Experts view this as China's most comprehensive support package for home loans to date, covering both new purchases and existing mortgages. Previous policy measures had mainly benefited new homebuyers, creating a disparity with existing homeowners and leading to a wave of early mortgage repayments that strained lenders. Existing mortgages had an average interest rate of about 4%, compared to 3.2% for new first-home loans and 3.5% for second homes.
The new measures are expected to ease the financial burden for an estimated 150 million people, potentially reducing their annual interest expenses by about 150 billion yuan. While these changes aim to stimulate the property market, they are likely to put additional pressure on China's largest banks. These institutions have already been grappling with record-low margins, declining profits, and increasing bad loans. However, Pan Gongsheng, the central bank governor, stated that the interest rate adjustments would have a neutral impact on bank profits and margins, as more funding becomes available and deposit rates are expected to follow suit.
To support the banking sector, officials also announced plans to inject capital into the largest lenders. Banks have already implemented multiple deposit rate cuts to offset the impact of lower loan rates. The first half of the year saw commercial bank profits rise by only 0.4%, the slowest pace since 2020, with net interest margins hitting a record low of 1.54%. The reduction in the minimum down-payment ratio for second-home buyers follows a previous cut to 25% in May, aligning with regulators' support for homebuyers looking to upgrade to larger properties.
Despite these efforts, China's real estate crisis is now in its fourth year with no signs of abating. August saw a deepening slump in home sales as the impact of earlier policy loosening measures waned, and buyers remained cautious due to expectations of further price declines. These comprehensive measures underscore the Chinese government's determination to address the prolonged property market downturn and its broader economic implications. The success of these policies in reviving the real estate sector and boosting overall economic growth remains to be seen.
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