Koh Gui Qing and Xiaoyi Shao Beijing
CHINA cut mortgage rates and downpayment levels for some home buyers yesterday for the first time since the 2008 global financial crisis, making one of its biggest moves this year to boost an economy increasingly threatened by a sagging housing market.
The relaxation of lending rules for home buyers was accompanied by steps to increase financing for cash-strapped developers, which may have problems paying their debts if the property downturn persists, as many economists expect.
Yet some analysts cautioned investors against thinking that the housing market and broader economy were poised to stage a stunning recovery. A glut of unsold or unoccupied homes and buyers’ expectations of further price declines could temper any rebound.
“We’re probably talking about some stabilisation at a low level, but it’s probably unlikely to drive a rebound in this market,” Zhu Haibin, an economist at JPMorgan in Hong Kong, said. “House prices are probably going to continue to decline, but at a slower pace.”
The housing downturn has weighed on already soft demand in China, dampening consumer confidence and slashing demand for related products. But even if the market only shows signs of bottoming out, it could put a floor under falling global prices for raw materials such as copper and iron ore, helping big commodity producers.
The news, which came on the eve of the Golden Week holiday, signalled that China’s central authorities were serious about preventing further deterioration in the property market, which accounts for about 15 percent of the world’s second-biggest economy.
“We will see the market boom with sales during the Golden Week,” said Liu Yuan, the head of research at property consultancy Centaline in Shanghai. “Such good news will make developers adjust their sales strategy overnight.”
He predicted a 15 percent monthly jump in property sales in October.
Second-home buyers could now get a 30 percent discount on their mortgage rates, an offer previously limited only to first-home buyers, the central bank and the banking regulator said. Downpayment levels were cut to 30 percent from between 60 percent and 70 percent.
Home prices fell for the fourth consecutive month in August while new construction activity continued to slump, leading many analysts to argue that only a cut in mortgage rates could turn things around for the sector and the economy.
To support the housing market, 40 of 46 regional Chinese governments have already abolished housing investment limits that were originally in place to calm frothy prices. Yet prices have continued to drop in a record number of cities.
Now authorities have relaxed the rules even further.
In cities without housing investment limits, banks lend to those buying their third homes and who do not have any outstanding unpaid mortgages. Banks were previously barred from lending to residents who were trying to buy more than two homes in big cities.
“For families that own one home and have paid off their mortgages, banks should treat them as first-home buyers,” the People’s Bank of China and the banking regulator said.
Banks should quicken their disbursements of mortgages and lend to healthy property developers that had commercially viable projects, the regulators said. – Reuters