[1/2]A Chinese flag flutters in front of a construction site in Guangzhou, Guangdong Province, November 7, 2014.Reuters/Alex Lee/File Photo Acquisition of license rights
BEIJING/HONG KONG (Reuters) – Guangzhou was the first major Chinese city to curb mortgage loans on Wednesday as the government stepped up efforts to revive the crisis-hit property sector and boost a struggling economy. announced the easing of
The decision comes as some Chinese state banks are expected to cut rates on existing mortgages, marking the first cut since the global financial crisis, three sources said on Tuesday.
The Chinese government hopes the cut in mortgage payments will lead to a recovery in consumer demand for property. The sector has long been a key driver of economic growth, but is now being dragged down by slowing home sales and a spate of developer defaults.
Outstanding mortgage loans in China totaled 38.6 trillion yuan ($5.29 trillion) at the end of June, accounting for 17% of total bank lending.
In a notice, the Guangzhou municipal government said restrictions on mortgage loans would be eased, allowing homebuyers to enjoy preferential loans when buying a home for the first time, regardless of their previous credit records.
China’s remaining top four first-tier cities (Beijing, Shanghai and Shenzhen) could follow suit, with a dozen second-tier cities that have not yet eased. Many smaller cities have already taken steps to make it easier to buy homes.
Hong Kong’s Hang Seng Mainland Property Index (.HSMPI) rose by as much as 3.3 percent after the announcement by the Guangzhou municipal government.
The real estate sector, which accounts for about a quarter of the economy, has been swinging from crisis to crisis since 2021, with liquidity stress at major developer Country Garden (2007.HK) becoming public this month. As a result, concerns about the spread of infection deepened.
When China’s largest private property developer releases its first half results on Wednesday, the focus will be on how cash-strapped Country Garden is. Like other companies in the same industry, the company has been hit hard by a decline in profit margins due to a sharp drop in real estate sales and the value of homes due to the economic slowdown.
support measures
A cut in existing mortgage rates is one of several aid measures announced by the Chinese government in recent weeks amid growing concerns about the health of the world’s second-largest economy.
But some analysts and homebuyers fear the move will take a serious hit as consumer confidence has been hit hard by the broader economic crisis, which saw youth unemployment hit a record high in June. Not sure how effective it will be in reviving buyer demand.
Realtors said few people shop in the secondary market and interest rates on commercial mortgages are still much higher than those on the Housing Provident Fund (the government’s savings program for buying homes).
Jackson Wang said he would transfer mortgages held at major Chinese banks to a funded housing fund and cut interest rates to 3.2% from the current 4.8%. He pays more than 5,000 yuan ($686) a month for an apartment in eastern Linyi.
“I expect a rate cut because I already bought a house at a premium and paid a high mortgage,” said Mr. Wang, 38.
“Chinese real estate has been so disappointing. Unless housing prices are significantly reduced, the sector will never again be attractive.”
Raymond Chen, Hong Kong-based head of China research at CGS-CIMB Securities, said the easing of mortgage restrictions came too late, and given homebuyer sentiment was so weak, there was little room to push home sales. He said the impact may not be significant.
“If regulators implemented this policy six to nine months ago, the impact on developer revenue could be even greater.”
bank deposit
Mortgage rate cuts will further increase margin pressure on banks. Three of China’s biggest banks said in their interim financial reports that their net interest margin (NIM), a key measure of profitability, contracted in the second quarter.
Vivian Xue, Asia-Pacific Financial Institutions Director at Fitch Ratings, said earnings pressure on the banking sector is expected to continue in the second half of the year and into 2024 due to narrowing margins and weak demand for personal loans. .
China’s benchmark banking sector index (.CSI399986) fell 1.04% and China’s CSI300 index (.CSI300) rose 0.02% following the Guangzhou mortgage announcement.
To cushion the impact, big state banks will also cut interest rates on some term deposits by a range of 10 to 25 basis points, the sources told Reuters.
(1 US Dollar = 7.2905 Chinese Yuan)
Reporting by Ziyi Tang, Liangping Gao, and Ryan Woo. Additional reporting by Claire Jim from Hong Kong. Editing: Sumeet Chatterjee, Robert Birsel, Miral Fahmy, Kim Coghill
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