In response to new stimulus measures, several Chinese cities have lowered down payments and mortgage loan interest rates to revitalise the sluggish property market. Hefei and Wuhan reduced down payments for first-time homebuyers to 15%, while second-time buyers experienced reductions to 25%. Some banks in Wuhan and Changsha also cut interest rates. These steps, along with the central bank's new lending facility for affordable housing, aim to stabilise the property sector. However, analysts caution that, despite these positive measures, the market's recovery will be gradual due to lingering buyer hesitancy and selective funding support for developers.
Several Chinese cities have recently reduced down payment requirements and mortgage loan interest rates, responding to new stimulus measures aimed at revitalising the mild property market, state media reported. Hefei and Wuhan have lowered the down payment for first-time homebuyers from 20% to 15%, the minimum allowed by the central bank's latest announcement, as noted by Shanghai Securities News on Wednesday. For second-time homebuyers, the down payment ratio has decreased from 30% to 25%.
Furthermore, banks in Wuhan have reduced mortgage loan interest rates for first-time buyers by 30 basis points (bps) to 3.25% in response to China's recent elimination of the floor level for interest rates. In Changsha, some lenders have reduced rates by 10 basis points to 3.65%, according to local media. Moreover, banks in cities such as Beijing, Shanghai, and Shenzhen have announced a 25-bps reduction in the interest rates of housing provident funds. Last Friday, China unveiled "historic" steps to stabilise its troubled property sector, including further cuts to mortgage interest rates and down payment requirements.
Since the property market's sharp downturn in 2021, many developers have defaulted, leading to numerous unfinished construction sites and diminishing confidence in what had long been a preferred savings vehicle for Chinese citizens. These measures offer hope for homebuyers and investors. Jeff Zhang, an equity analyst at Morningstar, acknowledged in a research note that these policies are encouraging. However, Zhang warned that potential buyers might remain cautious amid falling home prices, and it may take considerable time for these policy benefits to translate into increased home sales.
Additionally, the central bank announced the creation of a relending facility for affordable housing, which it claims will generate 500 billion yuan (USD 69.06 billion) in bank financing. Yet, this funding will selectively assist Chinese developers. Ricky Tsang, a credit analyst at S&P Global Ratings, highlighted that only completed projects would qualify for acquisition, implying that distressed developers, whose projects are typically incomplete, would not benefit.
Overall, these measures signify a significant step towards stabilising the property market, but we have yet to see the full impact. The cautious sentiment among potential buyers and the selective nature of the new funding facilities suggest a gradual path to recovery. The government's actions underscore its commitment to addressing the property sector's challenges, but substantial progress will likely require time.
In conclusion, while the recent measures represent a promising move towards stabilising the property market, their effectiveness will depend on overcoming the current cautious sentiment and translating policy changes into tangible improvements in home sales. The establishment of a lending facility for affordable housing, along with reductions in down payment requirements and mortgage rates, marks positive progress. However, we anticipate a protracted road to recovery. The government's initiatives highlight a dedicated effort to support the property sector, but achieving significant impact will necessitate sustained and comprehensive measures.
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