MNI: China Likely To Lower Homebuying Down-payment Ratios

China is likely to lower homebuying costs further by reducing down-payment ratios and mortgage rates as transactions and prices weaken, advisors and analysts told MNI, calling for increased central-government funding to stabilise the sector.

The People’s Bank of China could consider cutting the nationwide minimum down payment to 10% from 15%, said Xie Yifeng, dean at the China Urban Real Estate Research Institute, following the State Council’s recent pledge to increase efforts to support a property market recovery. 

While Guangzhou last week reiterated a full removal of restrictions on home purchases, sales, and prices – and plans to cut deposit and mortgage rates – Xie suggested the down payment for first homes should be reduced to 10% from the existing 15%, and to 15% for second homes, down from the current 20-25% in tier-one cities.

Yan Yuejin, vice president at the E-house China Research and Development Institution, said authorities should consider cutting down payments to 10-15% to boost sales, especially with many buyers cautious due to slow income growth. 

“Qihe county in Shandong province set a precedent by introducing a 10% down-payment policy, but it was later revoked,” Yan noted.

He emphasised that lower deposits should be matched with extended mortgage terms of up to 40 years, and suggested offering low monthly repayment loans tailored to young, skilled workers whose incomes are expected to rise over time.

RATE CUT

Xie said the PBOC could cut the benchmark 7-day reverse repo rate by another 10bp and the reserve requirement ratio by 50bp later this year to ease liquidity. (See MNI: Tariffs, Weak Demand To Drive Moderate PBOC Easing In H2)

“This could subsequently drive down the five-year Loan Prime Rate, from which many lenders derive their mortgage loans on, to 3.4%, but whether the mortgage rate can break below 3% also depends on commercial banks’ affordability due to narrowing net interest margin,” Xie said.

Despite the May LPR reduction, some cities like Guangzhou maintained a 3% mortgage floor by adjusting LPR spreads, he added.

STIMULUS IMPACTS

Yan said local governments face renewed pressure as the impact of earlier measures diminishes, with new home prices in 70 key cities falling 0.2% m/m in May, widening from a 0.1% drop. First-tier city prices fell 0.2% after flatlining in April. (See MNI: China's Cities To Target Lower Homebuying Costs)

Xie urged more central-government funding to support urban renewal and the purchase of unsold homes and land, given local fiscal constraints. He estimated CNY4-10 trillion would be needed, possibly from special treasury bonds, policy bank loans, and local government special bonds.

“All necessary measures have been implemented, but their effectiveness is increasingly short-lived,” said Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute. He pointed to the State Council’s launch of a nationwide survey of available land and ongoing housing projects to identify policy bottlenecks. “For example, stimulus measures will not work if a project lacks surrounding public facilities and buyers lack confidence about final delivery,” he added.