Looser mortgage rules seen boosting China's sluggish property market
First-time buyers redefined as those who have paid off mortgage loans
The People's Bank of China and China Banking Regulatory Commission yesterday announced a major loosening of the mortgage rules for the mainland property market, which is expected to give a boost to the sluggish sector.
Economists see the slowing property market as the biggest risk facing the world's second-largest economy, with international ratings agency Moody's warning of further downward price pressure on mainland residential properties.
Wang Tao, an economist with UBS Securities, described the moves as "the biggest step in easing controls on the property market" this year.
Yesterday's announcement redefined first-time buyers and lowered the preferential mortgage rate for them.
Those who have fully repaid an outstanding mortgage loan will now be considered first-time home buyers. Thus, they only need to satisfy a 30 per cent down payment, as opposed to 60 per cent. They will also receive a preferential interest rate as low as 30 per cent below benchmark lending rates, against a 15 per cent discount previously.
Households that own two or more homes and have paid off their mortgages will be allowed to obtain loans to buy another property at appropriate down payment levels and interest rates, according to their credit profile. Previously, mainlanders who owned two or more homes were not allowed loans to buy more.
"This is a big relaxation. It will give a stimulus to the demand for mass and upmarket properties," said Alan Jin, a property analyst at Mizuho Securities. "It is probably the first major relaxation targeted at the property sector since the central bank announced tightened lending policies in 2010."
The mainland's housing sector has been weighed down by high inventories and tightened credit, including restricted mortgage lending.
Sixty-eight of the 70 cities monitored by the National Bureau of Statistics recorded falls in property prices last month, the highest number since research started in January 2011.
"While the latest steps can ease the magnitude of the [mainland] market slump, they won't completely reverse the downward trend," Wang said.
Yesterday's announcement also encouraged mainland banks to issue mortgage-backed securities to support home buyers' demand for loans. In July, the Postal Savings Bank of China sold the first residential mortgage-backed securities on the mainland in seven years.
Loan securitisation would enable the central government to engineer another bank-financed credit surge, despite souring real estate credit, bad loans in other sectors and tight liquidity, wrote Diana Choyleva in a report for Lombard Street Research.
"The more output growth weakens, the more likely it is that Beijing will continue to spur household borrowing," she said.