Sat, May 18, 2024 page12

• China takes drastic steps to rescue property market

  • Bloomberg
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  China announced its most drastic move to shore up the beleaguered property market by removing the floor on mortgage rates and encouraging local governments to acquire homes to convert them into affordable housing.

  The People’s Bank of China effectively scrapped the nationwide minimum mortgage interest rate and cut down the minimum down payment ratio, the bank said in a statement yesterday. The ratio decreased from 20 percent to 15 percent for first-time home buyers, and 30 percent to 25 percent for second-home buyers.

  Local governments should acquire commercial homes at reasonable prices and turn them into affordable housing, Xinhua news agency reported Chinese Vice Premier He Lifeng (何立峰) as saying.

  

  A construction site in Nanjing, China, is pictured on Jan. 16.

  Photo: AP

  “The property sector is related to the interest of the masses and the big issue of economic development,” He said, adding that it is necessary to ensure “the responsibilities of local government, developers and financial institutions.”

  Official data released yesterday showed that home prices last month recorded the steepest month-on-month drops in a decade. That is even after a slew of incremental policies were issued to aid the sector.

  “This is the most relaxed down payment policy ever in China,” E-house China Research and Development Institute research director Yan Yuejin (嚴躍進) said. “It signals the central government is really prioritizing home-buying demand.”

  It marks a new phase in the government’s campaign to address the biggest drag on economic growth. China’s property downturn is threatening social stability, as protests spike and unsold housing inventory is hovering at an eight-year high. With construction work halted and developers defaulting, about 5 million people are at risk of unemployment or reduced incomes.

  The move “is unexpected and positive for property stocks,” Morningstar analyst Jeff Zhang said.

  The Shanghai Property Index surged following the statement, climbing as much as 3.2 percent before paring some gains. Shares of Chinese developers jumped 3.68 percent yesterday after the announcement. The benchmark has rallied 31 percent this month.

  Local authorities should buy back or retract land parcels that have been sold, but remain idle, as a means to ease developers’ cash flow strains, the vice premier said.

  There is a need to push forward the so-called “three big projects” that involve affordable housing, urban renovation and public infrastructure, He said.

  China began lowering the floor of mortgage rates in 2022 and allowed localities that suffered the most declines to set their own minimum rates. Such measures have led to a drop in the average rate on newly-granted mortgages to 3.69 percent in the first quarter — the lowest since the record began in 2009 — but failed to ignite purchase demand.

  The moves are set to further squeeze the margins of Chinese state lenders. The protracted property downturn has already thinned net interest margins and pushed up bad loans.

  Chinese banks’ net interest margin dropped to a record low of 1.69 percent as of the end of last year, well below the 1.8 percent threshold necessary to maintain reasonable profitability.

  It is still unclear how effective the measures would be, depending on enforcement, some analysts said.

  “The effects will depend on whether consumers will take heart,” said Shen Meng, a director at Chanson & Co, an investment bank.

  If it is not executed well “it’s unlikely to stimulate demand and induce a structural turnaround,” Shen said.
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