(Reuters) – China will allow local government authorities to buy some homes at “reasonable” prices to provide affordable housing, Vice Premier He Lifeng told an online meeting on housing policy on Friday, the official news agency, Xinhua, said.
China will cut interest rates of mortgage loans and down-payment ratios for homebuyers to boost lacklustre property demand, according to three statements released by its central bank on Friday.
MARKET REACTION:
China’s CSI300 benchmark real estate index jumped more than 4% on the news.
COMMENTS:
BRUCE PANG, CHIEF ECONOMIST CHINA, JONES LANG LASALLE, HONG KONG
“Moves such as the central bank’s mortgage rate cuts and reduced down payment ratios suggest Beijing is starting from the demand side and using monetary policy in the hope of scoring a decisive victory in a technical knockout.
“But combined with recent macro data, the property market’s rebound looks more like a long game that will require the cooperation of residents’ incomes, business confidence, market sentiment, and economic growth expectation.”
SENIOR EXECUTIVE OF DEFAULTED SHANGHAI-BASED DEVELOPER
“The policies on clearing inventory are considered quite powerful compared to all previous ones. Psychologically, it’d let investors think the government is ‘paying the bill’, and it is shifting the risks from property to banks and local governments.”
RAYMOND CHENG, HK HEAD OF CHINA RESEARCH, CGS INTERNATIONAL SECURITIES
“The latest two measures should further help improve market sentiment and boost developers’ share prices. The 15% down payment for first-time home buyers is the lowest since 2008 during the Asia financial crisis. Meanwhile, the removal of floor mortgage rate means that lower mortgage rates are expected given plenty of liquidity in the banking system.
“These measures, coupled with a series of other supportive policies on the property market and potential talk of government buying units from developers, suggest the central government’s seriousness and determination to address property market issues in China.”
LARRY HU, CHIEF CHINA ECONOMIST, MACQUARIE
“Overall, it’s a positive and encouraging direction, that the governments are stepping in to buy housing inventory.
“But in order to evaluate how powerful the impact will be, the key questions are who will be funding the purchase and how much they’ll fund in the end. Because funding from local governments would be much more limited than the central government’s. Impact of lowering mortgage rates would be limited because there’s still a lack of demand and that’s why we need government to be the buyer as a last resort.”
BACKGROUND:
* China’s various policy measures since 2022 have failed to turn around the property sector, which accounted for a fifth of economic activity at its peak and remains a drag on growth.
* Over the past few years, a growing list of developers has defaulted on debt repayment obligations and a handful of them, including China Evergrande Group, have been ordered to be liquidated.
* Banks have been reluctant to heed Beijing’s repeated nudges to bolster credit to the embattled sector given the risks of more bad loans.
* China’s central and local governments are pushing ahead with policies intended to clear the stock of unsold housing.
* Large cities, such as Beijing and Shenzhen, have eased home purchase restrictions, and some are allowing homebuyers to swap to a new home from an old one.
(Reporting by Reuters Asia bureau; compiled and edited by Subhranshu Sahu)
