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China Cuts Mortgage Rates to Counter Collapse in Home Sales

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(Bloomberg)-China’s central bank has effectively reduced interest rates on new mortgages to support the sick housing market and boost the economic slowdown.

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Sunday’s announcement from the People’s Bank of China means that first homebuyers will be able to borrow money at interest rates as low as 4.6% to 4.4%. The change is aimed at supporting housing demand and “promotes the stable and healthy development of the real estate market,” PBOC said.

China’s housing market is an important source of growth for the domestic economy, but sales have fallen at a double-digit pace every month since August 2021, and prices of new homes have fallen due to government crackdowns, for the first time in almost a year. It is sluggish. A real estate developer who is indebted to me. This year’s increasingly restrictive regulations and blockades to contain Covid-19 exacerbated the situation, undermined self-confidence, and severely restricted people’s opportunities to buy homes.

“It’s a loud statement that policy makers are pushing for real estate policy easing with concrete steps,” said an economist at Goldman Sachs Group, Inc., led by Maggie Way. rice field. “This announcement is a step in the right direction, and given that it is a national policy, it seems to be more important than the previous local easing, but more to stabilize the market. I think we need help. “

The decision to cut interest rates was made after the collapse of mortgages in April, and data released Friday show a reduction of 60.5 billion yuan ($ 8.9 billion) in new mortgages. It does more to stimulate the economy and housing markets from the central government, despite repeated attempts by local governments to boost demand by deregulating and deregulating cities and local real estate across the country. There was a signal that I would do it.

However, home sales continued to decline across major cities earlier this month, with 23 major cities in the first week of May declining one-third compared to the same period last year. This was in addition to the total revenue from the top 100 developers, which was halved in the first four months of the year.

A rare Sunday statement on monetary policy from the central bank precedes Monday’s release of April data, which is expected to indicate a significant slowdown in the economy. The March contraction in retail sales could be exacerbated by the blockade of cities such as Shanghai, slowing industrial output growth, and real estate investment is projected to decline for the first time since May 2020.

Also on Sunday, Shanghai announced that it would slow down its activities, stop industrial production in China’s most economically important cities, and gradually resume from a six-week blockade that blocked the world’s largest port. bottom. But after the blockade of other cities such as Xi’An and Changchun, the turmoil in Shanghai will continue for some time, based on how long it took to return to something like normal life.

The PBOC also has the opportunity to lower the policy rate on Monday morning, when banks may announce interest rates on one-year loans to banks. In a recent survey, 13 of the 25 economists surveyed by Bloomberg predicted that interest rates would remain unchanged at 2.85%, and 12 predicted a decline.

Loan prime rate

The PBOC said in a statement that the minimum interest rate on first-home mortgages would be 20 basis points lower than the loan’s prime rate. Most mortgages are longer than 5 years and are currently fixed at 4.6% at the 5 year LPR. So the new floor is effectively 4.4%.

If you have a one-year mortgage, you can also fix it to a one-year LPR of 3.7%.

“This announcement provides a green light to significantly lower mortgage rates,” said Macquarie Bank economists Larry Fu and Shinyu Ji. “It’s an important policy move for the real estate sector.” Stated. “The policy signal from today’s cuts is strong because it is the first action taken by the central government to support the housing market,” but “given weak economic data, another LPR cut could soon occur. There is, “they wrote.

The PBOC released its latest LPR on Friday, and some analysts expect banks to lower interest rates after central banks have led to lower deposit rates and reduced funding costs.

In a statement on Sunday, the PBOC also said it would instruct banks in each city to set their own minimum interest rates based on the new national level. In April, PBOC officials said banks in more than 100 cities had already cut mortgage rates by 20-60 basis points since March.

The minimum mortgage rate for second-house buyers hasn’t changed, and the central bank has repeatedly stated that “houses are for living, not speculation.”

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