MNI: China's Cities To Target Lower Homebuying Costs

Local authorities are likely to cut homebuying costs further and ramp up purchases of unsold homes and land, though broader stimulus will depend on economic performance and China-U.S. trade talks, advisors told MNI, adding that mortgage rates could fall another 20 basis points.

First-home mortgage rates could fall to between 2.8% and 2.85%, according to Xie Yifeng, dean at the China Urban Real Estate Research Institute. Most cities are still maintaining mortgage rates at 3% or higher.

Last week’s 10bp cut to the central bank’s policy interest rate is expected to drag down the five-year Loan Prime Rate – a benchmark for mortgage pricing – and push mortgage rates even lower, Xie said. Cities requiring higher down payments for second homes also have scope to reduce the ratio to the national minimum of 15%, he added.

Yan Yuejin, vice president at the E-house China Research and Development Institution, said local authorities will likely continue gradually lowering homebuying costs, including offering preferential loans with low monthly repayments to attract young and skilled talent.

However, the scope for significant stimulus will depend on housing sales and broader economic indicators, Yan noted. While April marked a slowdown, he expects key cities to maintain a reasonable pace of transactions in Q2. 

Xie added that policymakers are intentionally preserving flexibility amid continued uncertainty over China-U.S. trade negotiations. (See MNI: China Sees 10% Tariffs As Realistic, May Offer UST Deal)

Analysts from Chinese think tank Anbound noted the ongoing U.S. tariff war had contributed to April’s housing slowdown especially in export-dependent cities, citing weakened market confidence and diminished income expectations. 

While the latest Politburo meeting called for ongoing support to stabilise the property market, it stopped short of signalling large-scale stimulus, Anbound said. That could change, however, if sales falter or inventories rise sharply. 

SURPLUS LAND 

Efforts by local authorities to speed up the acquisition of unsold homes and surplus land for affordable housing projects will require more policy support due to limited returns, Xie said. He recommended increased fiscal subsidies, tax incentives and further cuts to the affordable housing re-lending facility rate – which was reduced from 1.75% to 1.5% last week – to as low as 1%. 

In addition to state-owned buyers, Xie urged authorities to allow private firms, including major housing agencies, to acquire and manage these assets, while also calling for more flexibility in how the homes are eventually used.

NEW FINANCING MECHANISM

Housing developers, particularly those included in the “whitelist," are set to benefit from an improving financing environment, following the National Financial Regulatory Administration’s announcement last week to fast-track the rollout of a financing mechanism compatible with the new real-estate development model, Xie said.

The mechanism will allow municipal governments to nominate residential projects for expedited bank lending to ensure timely delivery. Authorities are also expected to increase financial backing for efforts to expand affordable housing supply and promote urban renewal.

Yan added that developers involved in high-quality projects may qualify for preferential loans, and financial incentives are likely to be offered to those selling completed units, as policymakers seek to shift away from the traditional pre-sale model. (See MNI: China To Boost Developer Financing Support Further)