Banks should consider a modest easing in lending to first-time homebuyers and increase support for government-subsidised housing to limit the risk from the weakening property sector, Bank of China economists said yesterday.
The tighter lending policies that applied to the property market not only forced speculative buyers out of the market but also discouraged end-users, the economists said in the bank's 2012 first-quarter economic outlook.
While it was not the right time to lift all credit tightening, commercial banks could consider lowering their down-payment requirement for first-time buyers.
When liquidity was very tight two months ago, banks charged buyers 1.1 times the central bank's benchmark rate of 7.05 per cent, compared with 4.16 per cent two years ago. But property consultants said more banks had recently been charging first-time homebuyers mortgage rates at the benchmark lending rate. This came after the People's Bank of China earlier this month lowered the reserve ratio requirement - the proportion of assets they must hold in reserve - by 50 basis points.
The reduction lowered the ratio to 21 per cent for large lenders and 17.5 per cent for small and medium-sized lenders. The move is expected to release about 400 billion yuan (HK$489 billion) in deposits into the banking system that could be used for lending.
The BOC economists suggested banks provide preferential lending rates to first-time home buyers in a move to support a stable development of the property sector.
A correction in the property sector would result in a slowdown in other related industries, such as steel, cement and construction, the report said. It would likely increase the risk of an economic slowdown and could weaken commercial banks' asset quality.
BOC predicted home prices would continue to soften, while sales volume would drop about 15 per cent next year.
The bank also suggested that city governments could consider other eligibility criteria - such as how long the customer had lived in the city, as well as their tax payment records - when considering home purchases.
To restrict speculative buying, 46 cities have imposed rules that limit the number of new home purchases for each hukou or household registration. But those who do not have such registration cards are banned from buying property in some cities, and are severely restricted in others. BOC suggested that this should not be the only eligibility criteria.
Meanwhile, the report said the central bank was likely to cut its reserve requirement ratio at least twice in the first half of 2012. But they said it was unlikely to adjust interest rates in the short term.
The economists predict the yuan will rise about 3 per cent against the US dollar next year.
They say the mainland's gross domestic product is likely to grow 9.3 per cent this year and 8.8 per cent in 2012, while the consumer price index will likely rise 5.4 per cent this year and 3.5 per cent next year.
China plans to begin building or renovating at least this many housing units for low-income groups next year