PBoC allows some cities to cut mortgage rates for first-time buyers

Chinese authorities will allow some cities to lower mortgage rates for first-time homebuyers in a bid to revive the hard-hit property market.

Eligible local governments can now maintain, lower, or scrap the floor on mortgage rates for such buyers in phases. The People’s Bank of China and the China Banking and Insurance Regulatory Commission announced the move in a statement.

Cities will be eligible where the sales prices of newly built commercial residential housing fell between June and August this year in both month-on-month and year-on-year terms. These cities will be allowed to relax the lower limits on mortgage rates for first-time buyers by the end of 2022.

Analysts said a third of China’s largest cities will be eligible for the scheme, according to the data published by China’s statistics bureau. Twenty-three out of 70 of the largest cities will qualify.

“The introduction of this policy measure will help city governments to make full use of their policy toolbox for promoting the steady and healthy development of the real estate market,” the financial regulators said.

The regulators added that banks and customers can negotiate to determine specific interest rates for new home loans. The measure will help reduce people’s interest payments and support housing demand, they said.

China’s property sector is facing a serious downturn. Cash-strapped developers have halted construction work and some homebuyers are refusing to pay mortgages on unfinished housing.

Home sales between January and August this year fell around 30% compared with the same period last year, according to the National Statistics Bureau. Real estate investment also fell 7.4% in the same period year on year.

New home prices in China’s largest 70 cities dropped 0.29% in August from July, and were down 2.1% from a year earlier.

The new measure adds to recent steps taken by policymakers to bolster the property sector. In August, the PBoC cut its five-year loan prime rate – a reference for mortgages – by 15 basis points to 4.30% from 4.45%. It was the third time this year the central bank lowered the rate, following a 5bp cut in January and a 15bp cut in May.

China Construction Bank, one of the four largest state-owned banks in China, said it will set up a 30 billion yuan ($4 billion) fund to finance real estate projects.

But some analysts said the central government’s latest move to allow relaxation of mortgage rates would provide just limited support for the sector.

“The move helps on the margin, but is not a game changer,” said Larry Hu, chief China economist at Macquarie Group, in a note. He said while property sales in top mainland cities rebounded in recent weeks, the property sector is “not out of the woods yet.”