Beijing and Shanghai cut mortgage rates

New rules allow home buyers to lower down payments and mortgage rates. The action encourages developers, weakened by falling sales and tight credit, but the mood remains far from optimistic.

Photo by Fan Jianlei

Photo by Fan Jianlei

By WANG Tingting


Beijing and Shanghai have changed the rules for home buyers following the lead of Guangzhou and Shenzhen.

The new regime offers lower down payments and mortgage rates.

Refusal to get out of bed

The property sector generates about a quarter of China's economic activity and prices slumped badly last year as developers defaulted on their enormous debts and stopped building, even houses that they had already sold.

For more than a year, different support measures have been tried in different cities. Policies range from extended financial support for developers to multi-faceted incentives for buyers. But the economic outlook and persistent weakness in the sector have obstinately refused to recover.  

The Bank of China, the Ministry of Housing and Urban-Rural Development, and the National Administration of Financial Regulation asked banks to ease mortgage requirements at the end of last month.

Long way down

The biggest problem is perhaps that buyers remain convinced that prices still have further to fall. Similar effects are being seen in China's huge car market, as buyers look gleefully on as a price war wages, guarding their powder until the bottom has been reached and recovery is more obviously underway. The same seems true of the housing market. No one wants to buy today if prices will be lower tomorrow.

Nationwide, new-home sales fell by 5.3 percent in the first half of the year. In Shanghai, sales of new homes have been below 5,000 in the past two months. Sales of existing homes have been less than 15,000 for four months.

Treading a fine line

As usual in China, the government is trying to help people buy their first homes while working to prevent speculation.

The new rules mean first-time home buyers can expect even more preferential treatment for first-home purchases regardless of their previous credit record.

If a buyer in Shanghai has outstanding loans but no properties, a down payment will be only 35 percent of the home price instead of the current 70 percent. The mortgage rate will be lowered from 5.25 percent to 4.55 percent. Beijing and Shanghai have both cut payment requirements by at least 15 percent for first-time buyers.

Follow my leader

Many cities - Chongqing, Wuhan and Xiamen among them – already have policies. Beijing and Shanghai have more robust markets than smaller cities, hence they are among the last to make changes. 

Since the move, Anhui Province has announced similar mortgage requirements. Suzhou in East China's Jiangsu Province and Nanning in South China's Guangxi Zhuang Autonomous Region will also ease mortgage rules.

September and October are usually the peak season for home buying in China. Better mortgage deals may stimulate demand, but the government has signaled further cuts to come, which means buyers are going to "wait and see" rather than jump right in with new purchases.

Unending struggle

Falling sales and tight credit have greatly weakened developers for the past three years. They are encouraged by government action, but the mood remains very far from optimistic.

The difficulties faced by real-estate giants are a complicated mix of factors including the Covid hangover and external influences, accumulated during – and directly fueling - the unsustainable growth of the past.

As more measures take effect, the government hopes that market expectations and consumer confidence will be stabilized, both in the real estate sector and wider ranges in the overall economy.