Real Estate Finance Policy Impact: New Measures Analyzed

New financial measures to support the real estate sector have recently been introduced: guiding banks to reduce existing mortgage loan interest rates, unifying the minimum down payment ratio for mortgages to 15%, optimizing the re-lending policy for affordable housing, and supporting the acquisition of real estate companies' existing land... What considerations are behind this combination of real estate financial policies at this time? What impacts will the new policies bring?

On the 24th, at a press conference held by the State Council Information Office, People's Bank of China Governor Pan Gongsheng announced five real estate financial policies. This led many market insiders to exclaim: beyond expectations!

Improving real estate financial policies requires action from both the supply and demand sides. In terms of stimulating effective demand, the People's Bank of China once again announced a reduction in existing mortgage loan interest rates and unified the minimum down payment ratios for first and second mortgages.

Last August, the People's Bank of China also promoted a round of adjustments to existing mortgage loan interest rates by commercial banks. After the adjustment, the average interest rate for existing first-mortgage loans decreased by 0.73 percentage points. However, after the last adjustment, many existing mortgage loan interest rates were still around 4%.

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With the continuous downward trend of newly issued loan interest rates, the interest rate gap between new and old mortgages has been widening, especially in cities with higher original加点幅度, such as Beijing, Shanghai, Shenzhen, Guangzhou, etc., where the gap is even larger.

Regarding this batch of adjustments, Pan Gongsheng stated that banks are expected to guide existing mortgage loan interest rates to approach the interest rates of newly issued mortgages, with an expected average decrease of about 0.5 percentage points.

Upon learning that the interest rates on existing mortgages will be adjusted again, Mr. Sun, who lives in Wangjing, Beijing, is quite concerned. During the last adjustment of existing mortgages, his loan interest rate was reduced to 4.75% due to the lower limit requirement of Beijing's first-mortgage loan interest rate policy.

"Now the lower limit of newly issued first-mortgage loan interest rates in Beijing is 3.4%, which is more than 1 percentage point away from my mortgage interest rate. Even if it only decreases by 0.5 percentage points, I can save about 1,600 yuan per month," Mr. Sun calculated.

Zhang Dawei, Chief Analyst at Central China Real Estate, said that if calculated based on a commercial loan of 1 million yuan with a 30-year equal principal and interest payment, a 0.5 percentage point decrease in mortgage loan interest rates would reduce the borrower's monthly payment by about 280 yuan, saving more than 100,000 yuan in interest expenditure over 30 years.

As of the end of June, the balance of personal housing loans in China is 37.79 trillion yuan. Pan Gongsheng clearly stated that the decrease in existing mortgage loan interest rates will benefit 50 million households and 150 million people, reducing the total annual interest expenditure of families by about 150 billion yuan.Dong Ximiao, Chief Researcher at China United, stated that reducing the interest rates on existing housing loans is beneficial for further reducing borrowers' mortgage interest expenses, curbing the behavior of early loan repayments, and also compressing the space for non-compliant substitution of existing housing loans, thereby maintaining the stable and healthy development of the real estate market.

In addition to alleviating the interest pressure on mortgage borrowers, the financial regulatory authorities have also unified the minimum down payment ratios for first and second housing loans. The down payment ratio for the second house has also been reduced to 15%, setting a new low in recent years.

Mr. Yuan, a resident of Chongqing Liangjiang New District, recently took a liking to an improved housing unit located in the Central Park area. "The second child in the family is about to be born, and the original house is not enough to live in, so I want to buy another four-bedroom apartment," Mr. Yuan told the reporter. If the minimum down payment ratio for the second housing loan is subsequently reduced from 25% to 15%, the down payment can save at least 235,000 yuan.

"Adjusting housing financial policies from two aspects, namely mortgage interest rates and down payment ratios, helps to lower the threshold for residents' housing consumption, reduce interest burdens, and promote the expansion of consumption and investment," said Zeng Gang, Director of the Shanghai Finance and Development Laboratory. Localities can also formulate policies according to the city, determining the minimum down payment ratio limit within their jurisdiction. Moreover, 15% is only the minimum down payment ratio, and whether it can be implemented at the minimum down payment ratio, commercial banks still need to assess according to the risk situation of the customers.

While supporting residents in purchasing homes from the demand side, financial regulatory authorities have also introduced many favorable policies for the supply side.

Pan Gongsheng introduced that the phased policies for the extension of existing real estate financing and loans for operational properties, which were originally due to expire at the end of this year, have been decided by the People's Bank of China and the Financial Regulatory General Bureau to be extended to the end of 2026.

Industry experts introduced that extending the term of some real estate financial policies helps to further activate the existing assets of real estate companies and improve the cash flow of real estate companies.

Activating existing housing is the key to resolving real estate risks. The People's Bank of China has also further optimized the policy of re-lending for affordable housing, which has attracted widespread attention in the market.

In May of this year, the People's Bank of China announced the establishment of 300 billion yuan for affordable housing re-lending, guiding financial institutions to support local state-owned enterprises to purchase unsold commercial housing at reasonable prices according to market-oriented and rule-of-law principles.

"To further enhance the market-oriented incentives for banks and acquisition entities, we have increased the proportion of People's Bank of China's financial support in the affordable housing re-lending policy from the original 60% to 100%, and accelerated the process of de-stocking commercial housing," Pan Gongsheng said.Dong Ximiao believes that the People's Bank of China's increase in the proportion of financial support to 100% will help to enhance the enthusiasm of commercial banks and local state-owned enterprises, and accelerate the process of reducing the inventory of commercial housing. This move also helps to further increase the supply of affordable housing and promote the establishment of a new model for the transformation and development of the real estate industry.

In addition, in terms of supporting the acquisition of real estate companies' existing land, the People's Bank of China has proposed, on the basis of using some local government special bonds for land reserves, to study and allow policy banks and commercial banks to provide loans to support qualified enterprises to acquire real estate land in a market-oriented manner.

Pan Gongsheng introduced that this move helps to revitalize the existing land use and alleviate the financial pressure on real estate companies. "At the necessary time, the People's Bank can also provide re-lending support."

As the supply and demand relationship in China's real estate market undergoes significant changes, financial measures are also continuously adapting to the situation and optimizing. On the one hand, they continue to increase support for rigid and improved housing needs, and on the other hand, they prevent the spillover of real estate risks.

"The additional real estate financial policy in this round has not changed the consistent policy direction, and the connection between old and new policies is steady and orderly." Wen Bin, the chief economist of China Minsheng Bank, said that the financial policy support has been increased, fully helping to stabilize the stock and promote the increase, conveying a clear signal to stabilize the real estate market.