The central government of China has allowed nearly two dozen cities to lower mortgage rates for purchases of primary residences, in a move analysts said was likely to provide only limited help for the country's struggling housing market.
The central bank and banking regulators released a statement from the central bank and banking regulators late on Thursday evening that eligible cities will be able to maintain, lower or remove the minimum interest rates for loans that go toward primary-home purchases in their jurisdiction. The permission will last through the year-end.
The regulators said that the new rates could be negotiated between banks and their customers.
The statement said that the new policy will apply to cities where newly built housing prices fell during the June-through-August period, compared with the previous three months and the same period in 2021. In August of this year, new home prices in China's top 70 cities dropped 0.29% and were down 2.1% from a year earlier. The trend worst in third-tier cities, where declines are seen, was seen in the nation last month, as downward pressure was seen on home prices.
We may see more local governments ease their local housing policies in the coming months but a significant property sector recovery requires more effort and time, according to Goldman Sachs Group Inc. economists Lisheng Wang, Hui Shan and Maggie Wei.
The more than year-long slump in the housing market has dragged on the economy, adding to the damage to growth and activity from Beijing's Covid Zero policy. While the economy looks to have rebounded from the April-through-June period, when the lockdowns of Shanghai, Jilin province and other major economic hubs almost drove gross domestic product to contract, many economists are lowering their expectations for the full year.
A total of 23 of the 70 largest cities in the country are eligible for the rate-cut discretion, according to a cross-check by Bloomberg of the new home price figures for the given months provided by China's National Bureau of Statistics.
According to the data compiled by Bloomberg, none of the four largest cities - Beijing, Shanghai, Shenzhen and Guangzhou - qualifies for the relaxation list.
Before the policy change, Chinese banks already could cut mortgage rates to a record low of 4.1%, after the five-year loan prime rate was reduced this month to boost housing demand. The central bank vowed to speed up the use of targeted loans to ensure the delivery of delayed property projects earlier on Thursday.
I am skeptical that it will have a large effect. Craig Botham, Chief China economist at Pantheon Macroeconomics in London, said that rates and other restrictions have been loosened several times this year, with little discernible uplift to mortgage borrowing. He said it was not the supply of credit that is the problem, but it is the lack of confidence in the market, driven by falling prices and failing developers, and a weak economic backdrop that weighs on employment and income.