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China property
BusinessBanking & Finance

China housing market: major banks begin cutting outstanding mortgage rates, but impact may not be ‘sufficient’, analysts say

  • A total of 20 banks began cutting payments on outstanding first-home loans from Monday
  • Cut might not boost demand as the main problem right now is low consumer confidence and expectations of future income, executive at Beijing-based investment firm Chanson&Co says

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Residential buildings in Beijing. Borrowers who have taken out a first mortgage before August 31 this year qualify and will see an automatic cut in their monthly payments without having to apply for it, the banks say. Photo: EPA-EFE
Yuke Xiein Beijing
Major Chinese commercial banks have cut rates for outstanding home loans as part of a series of state-directed stimulus measures aimed at easing homebuyers’ debt burdens and reviving the country’s troubled property sector. But the cut might not provide a sufficient boost to demand, analysts said.

A total of 20 state-owned banks, joint-stock lenders and commercial banks said earlier this month that they would begin to cut payments on outstanding first-home loans starting on Monday.

Borrowers who have taken out a first mortgage before August 31 this year qualify and will see an automatic cut in their monthly payments without having to apply for it, the banks said.

“The regulatory move to cut outstanding mortgage rates in bulk suggests that the previous price negotiations with homebuyers led by the commercial banks were not effective enough in generating more transactions in the property market,” said Shen Meng, director at Beijing-based investment firm Chanson&Co. “The majority of over 70 large and mid-sized cities in China are once again seeing their prices go down, and that’s why regulatory authorities are rolling out mortgage rate cuts to … stimulate demand, but the main problem right now is low consumer confidence and expectations of future income.

“So even if the total costs of buying a house are going down, we still might not see a sufficient boost in demand.”

Outstanding mortgage rates will be cut to as low as the national floor rate at the time the homes were bought, which currently stands at 20 basis points below the benchmark five-year loan prime rate of 4.2 per cent, the banks said earlier this month.

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