BEIJING, Sept 30 (Reuters) – In a bid to bolster its struggling property market amid an economic slowdown, China’s central bank announced on Sunday that it will instruct banks to lower mortgage rates for existing home loans before October 31. This measure is part of a series of policies aimed at reviving the beleaguered real estate sector.
The People’s Bank of China (PBOC) stated that commercial banks should reduce interest rates on existing mortgages by at least 30 basis points below the Loan Prime Rate (LPR), which serves as the benchmark rate for mortgages. On average, existing mortgage rates are expected to be cut by approximately 50 basis points.
This announcement follows a broader array of measures introduced earlier this year, including reductions in down-payment ratios and mortgage rates, aimed at reviving a property market that has faced significant challenges. However, these stimulus efforts have struggled to stimulate sales or enhance liquidity in a market largely avoided by buyers, continuing to weigh on the overall economic growth of the country.
In a related move, Guangzhou city lifted all restrictions on home purchases, while Shanghai and Shenzhen announced plans to ease restrictions for non-local buyers and reduce the minimum down payment ratio for first-time homebuyers to no less than 15%. Reports indicated that Shanghai and Shenzhen were also set to lift key remaining restrictions to attract potential buyers.
These measures follow the unveiling of China’s most substantial economic stimulus since the onset of the COVID-19 pandemic, aimed at addressing the country’s deflationary challenges.
Recent property-related data revealed that new home prices in China fell at their steepest rate in over nine years in August, while property sales plummeted by 18% in the first eight months of the year. The central bank’s mortgage rate reduction seeks to alleviate the financial burden on homeowners and stimulate demand in the property sector, which has been severely impacted by weakened domestic consumption.
The PBOC acknowledged in its statement that the current mortgage rate pricing mechanism has revealed shortcomings as the dynamics of the real estate market shift. “With the public showing strong responses (to the situation), the mechanism needs urgent adjustments and optimisation,” it stated.
China’s largest state-owned banks, including the Industrial and Commercial Bank of China and China Construction Bank, confirmed they would actively comply with the new policy and facilitate the orderly adjustment of existing mortgage interest rates.
Notably, while many local governments have already removed floor limits on mortgage rates, major cities such as Beijing and Shanghai have maintained stricter controls. Previous reductions in mortgage rates predominantly benefitted new homebuyers, leaving existing homeowners with higher-rate loans, prompting many to pay off their mortgages early and further limiting household spending.
As of June, the outstanding value of individual mortgages stood at 37.79 trillion yuan ($5.39 trillion), reflecting a 2.1% year-on-year decline according to official data. Additionally, the PBOC announced it would extend supportive measures for developers’ real estate loans and trust loans until the end of 2026 to better meet financing demands.
($1 = 7.0110 Chinese yuan renminbi)