China's state-owned banks are preparing to cut mortgage rates in response to the government's call for increased housing affordability and consumption stimulation as the country's economy faces a slowdown.
Bank of Communications (BoCom), the fifth-largest bank in China, has initiated discussions regarding adjustments to existing mortgage rates for personal home loans. While larger banks might follow suit if BoCom reduces its rates, analysts suggest the impact of such cuts would be limited.
The People's Bank of China and the housing ministry recently relaxed mortgage rules to categorize households without any registered property as "first-time homebuyers," aiming to incentivize home purchases.
Gary Ng, a senior economist at Natixis Corporate and Investment Bank, notes that cutting existing mortgage rates by 50 basis points could potentially boost retail sales by 0.4% in an optimistic scenario. However, he highlights that this might only partially restore consumer confidence and may not address underlying economic challenges.
China Construction Bank (CCB), Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC), and Bank of China have not confirmed similar plans. The efficacy of these rate cuts is debated, as some experts view them as insufficient to address broader economic issues.
China's central bank recently made a smaller-than-expected reduction in the one-year loan prime rate, causing concerns about the government's approach to the property sector. To support the equity market, China's financial authorities halved the stamp duty on stock transactions.
Despite these measures, China's outstanding mortgage loans dropped for the first time on record in July. The decision to lower rates for existing homeowners before the annual adjustment is seen as a positive move that could enhance policy transmission and potentially pave the way for larger rate cuts in the future.
Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution, highlights that while reducing mortgage rates might create short-term losses for banks, it could contribute to credit stability in the medium and long term. Early mortgage repayment has been a trend among homeowners seeking to reduce interest burdens.
The evolving landscape of China's housing market reflects the government's balancing act between stimulating consumption, addressing affordability concerns, and maintaining financial stability in the face of an economic slowdown.
By fLEXI tEAM