18th May 2024 – (Beijing) China has introduced groundbreaking measures to lower the barriers for acquiring commercial housing mortgages. The People’s Bank of China (PBOC) and the National Financial Regulatory Administration have jointly announced a reduction in the minimum down payment ratios, marking a historic move to invigorate the property market and stimulate economic growth.

The latest policy adjustments see the minimum down payment ratios for first-home purchases slashed to 15 per cent, a substantial decrease from the previous 20 per cent. For second-home buyers, the ratio has been reduced to 25 per cent. This measure is designed to make home ownership more accessible to a broader spectrum of the population, thereby boosting consumer confidence and demand within the housing sector.

In a parallel move, the PBOC has abolished the floor level of commercial mortgage rates for both first and second homes nationwide. This significant change allows local central bank branches the flexibility to set minimum mortgage rates based on regional economic conditions and market dynamics. This decentralisation is expected to foster a more competitive lending environment, tailoring mortgage rates to better fit local realities and borrower profiles.

Further easing the financial burden on prospective homeowners, the PBOC announced a reduction in the loan rates of the individual housing provident fund by 0.25 percentage points effective from 18th May. This adjustment is aimed at enhancing the affordability of housing by reducing the cost of mortgage borrowing, thus encouraging more citizens to invest in the property market.

Adding another layer to its comprehensive strategy, the Chinese government under the guidance of Vice Premier He Lifeng, is enabling local governments in regions with excess commercial housing stocks to purchase homes at reasonable prices. These properties are then provided as affordable housing, addressing both the issue of housing surplus and the critical need for affordable living options.

These measures are part of a broader, multi-pronged approach to rejuvenate the property sector. Recognising the interconnected nature of real estate with other economic sectors, this strategy not only aims to stabilise the housing market but also to enhance the overall economic resilience of the nation. By reducing inventory through strategic purchases and stimulating demand through financial incentives, the government is paving the way for a balanced and sustained recovery in the real estate sector.

The response from the market to these new policies has been overwhelmingly positive. Real estate stocks have seen a notable increase, with the Shanghai Property Index climbing by 3 percent immediately following the announcement. This uptick is a clear indicator of renewed investor confidence in the property market, suggesting a positive outlook for the real estate sector moving forward.

Industry experts predict that these measures will not only stabilise the property market but also have a ripple effect across the economy. By boosting construction and related industries, the policy is expected to contribute significantly to China’s GDP growth, potentially reaching or even exceeding the government’s target of around 5 to 5.5 per cent this year.

China’s latest policy overhaul in the housing sector represents a strategic pivot from previous approaches that focused heavily on regulatory constraints. By adopting measures that stimulate both demand and supply, the government is fostering a more sustainable growth model that balances economic expansion with financial stability. This holistic approach reflects a nuanced understanding of the market dynamics and a firm commitment to achieving long-term economic objectives.