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China establishes mortgage rate adjustment mechanism for some home buyers
© Reuters. FILE PHOTO: Surveillance cameras are seen near residential buildings under construction in Shanghai, China July 20, 2022. REUTERS/Aly Song
BEIJING (Reuters) -China's central bank and the banking and insurance regulator have established a dynamic adjustment mechanism on mortgage rates for first-time home buyers, the central bank said on Thursday, in a bid to further support the property sector.
For cities where the selling prices of new homes fall month-on-month and year-on-year for three consecutive months, the floor on mortgage rates can be lowered or abolished for first-time home buyers in phases, according to a statement by the People's Bank of China (PBOC).
In late September, the central bank had allowed localities to take similar action until the end of 2022.
The move is more flexible than September's policy, said Chen Wenjing, analyst at China Index Academy, one of China's biggest real estate research firms, adding "it will lower the cost of buying a home and help better support rigid and improved housing demand."
The crisis in China's property market, once a pillar of the world's second-biggest economy, worsened last summer with home prices, sales and investment all falling sharply.
In recent weeks, policymakers have ramped up support for the industry to relieve a long-running liquidity squeeze that has hit developers and delayed the completion of many housing projects, scaring away buyers.
According to analysts' calculation, 38 cities are eligible for adjustable mortgage rate floors, including some second-tier cities such as Wuhan and Zhengzhou and more than 20 smaller cities.
Analysts said the move shows the government's growing intent to support demand in weak cities, but added the impact may be limited.
"Lowering mortgage rates has not been able to drive sales. We think homebuyer confidence is a more important factor than affordability," said analysts at J.P.Morgan in a research note.
Ni Hong, head of China's housing regulator, also vowed to give strong support to first-time homebuyers by allowing smaller down payments and cutting mortgage interest rates wherever appropriate, according to state broadcaster CCTV on Thursday.
Ni said "reasonable" support needs to be given to buyers of second homes although not for the purchase of three homes or more, and he was confident the property market would stabilize and recover in 2023.
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