China announced a series of new measures to revitalize its struggling property market following a near 10% decline in housing prices since the start of the year. The central bank revealed plans to reduce the minimum down payment for mortgages and eliminate the floor on interest rates for both first and second homes, in a bid to stimulate the market.
The housing market's downturn began after the government imposed restrictions on excessive borrowing by property developers, leading to a broad economic slowdown affecting industries such as home furnishings, appliances, and construction. This crackdown resulted in numerous developers defaulting on their debts and many projects stalling unfinished.
Vice Premier He Lifeng emphasized the government's commitment to addressing these challenges, announcing that policies will be tailored to each city’s specific needs. "We will solidly advance key tasks such as guaranteed housing delivery and absorption of existing commercial housing", he said.
Earlier initiatives, including interest rate cuts and government-backed financing, have failed to significantly entice buyers, particularly as developers struggle to deliver on housing projects that have already been paid for. Housing is a major investment for many Chinese, and with low bank interest rates, potential buyers have been hesitant, waiting for the market to stabilize. The economic uncertainty following the COVID-19 pandemic has also left many wary of making substantial purchases.
The People's Bank of China announced that starting Saturday, the interest rate for first-time housing provident fund loans will be cut by 0.25 percentage points, setting the rate at 2.35% for loans under five years and 2.85% for those over five years. Additionally, minimum down payments for first homes will be reduced to 15% of the purchase price, while second homes will require a 25% down payment. These adjustments bring down payment requirements and mortgage interest rates to historic lows.
Chen Wenjing of China Index Holdings, a Nasdaq-listed company specializing in real estate market information, noted that these measures reflect the Chinese leadership’s determination to stabilize the real estate market. "Reducing the down payment threshold and home purchase costs for residents will likely boost their willingness to buy homes", Chen said. He added that if major cities implement similar measures, market sentiment could improve significantly.
Dong Jianguo, Vice Minister of Housing and Urban-Rural Development, stressed the importance of ensuring that home buyers receive what they have paid for. "In judicial proceedings, protecting the legitimate rights and interests of homebuyers should also be a top priority", Dong stated at a news conference in Beijing.
On the same day, the National Bureau of Statistics acknowledged ongoing economic challenges, noting insufficient domestic demand and high business pressure. Housing prices fell 9.8% from January to April compared to the previous year, underscoring the urgency for further government intervention.
Liu Aihua, a spokesperson for the bureau, highlighted the increasing complexity and uncertainty of the external environment, coupled with insufficient effective domestic demand. "The foundation for recovery needs to be strengthened", Liu said.
One innovative strategy involves local governments purchasing unsold apartments to convert them into affordable housing. This trial program appears to be evolving into a national policy. The central bank has established a 300 billion yuan ($42 billion) fund to support these purchases, aiding state-run companies and local governments in acquiring unoccupied housing for affordable rentals.
Despite a robust 5.3% economic growth rate in the first quarter of the year, which is relatively modest for a developing economy, signs of economic weakness persist. The National Bureau of Statistics reported that factory output increased by 6.7% in April from a year earlier, and investment in fixed assets, such as factory equipment, rose by 4.2%. However, housing starts dropped nearly 25% year-on-year, and sales, measured by floor area, fell by 20%. Financing for property projects decreased by 25%, and retail sales saw a modest rise of only 2.3% in April.
These comprehensive measures reflect the Chinese government's determination to stabilize the real estate market and support broader economic growth. The success of these initiatives will be critical in ensuring a more stable and sustainable economic environment.