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China’s central bank announced on Sunday that it will instruct commercial banks to reduce mortgage rates for existing home loans before October 31. This is part of a broader effort to support the country's struggling property market amidst an economic slowdown.
The People's Bank of China (PBOC) stated that banks should lower interest rates on existing mortgages to no less than 30 basis points (bps) below the Loan Prime Rate (LPR), which serves as the benchmark for mortgages. The initiative is expected to reduce existing mortgage rates by about 50 bps on average.
In recent months, China has rolled out various policies, including reductions in down-payment ratios and mortgage rates, to revitalize its crisis-hit property sector. However, these stimulus measures have struggled to boost sales or liquidity in a market that has been a significant drag on overall economic growth.
To complement these efforts, the city of Guangzhou announced the lifting of all restrictions on home purchases. Meanwhile, Shanghai and Shenzhen will ease restrictions on housing purchases by non-local buyers and lower the minimum down-payment ratio for first-time homebuyers to no less than 15%.
These announcements follow China's unveiling of its largest stimulus package since the COVID-19 pandemic to combat economic deflation.
Property data released earlier this month indicated that new home prices fell at the fastest pace in over nine years in August, with property sales declining by 18% in the first eight months of the year.
"The current mortgage rate pricing mechanism has exposed some shortcomings," the PBOC stated, emphasizing the need for "urgent adjustments."
China's four largest state-owned banks, including Industrial and Commercial Bank of China Ltd. and China Construction Bank Corp., have committed to actively respond to the new policy.
Additionally, the PBOC announced that it would extend supportive measures for real estate developers' loans until the end of 2026 to better fulfill their financing needs.
($1 = 7.0110 Chinese yuan renminbi)
