UpdatePBOC slashes downpayment in China’s housing market, sparks rally in stocks to 7-year peak

The People’s Bank of China on Monday slashed the downpayment needed to buy homes in the country to 40 per cent after expectations of further stimulus measures had earlier powered Chinese stocks to a seven-year peak. The Hong Kong market ringing up its biggest daily gain in two months as investors bet on more stimulus by Beijing to re-energise the country’s cooling economy. The PBOC said on its website that all banks “are encouraged to offer commercial support to families to buy their own home…with the downpayment not lower than 40 per cent” for second home buyers from 60 to 70 per cent. The mainland’s finance ministry also announced Monday that sellers of ordinary homes would be exempted from a 5.6 per cent transaction tax after owning the property for two years. The measure will take effect on Tuesday. The impact was well anticipated by the stock markets, which were also pricing in a potential cut to interest rates or the official required reserve ratio. China’s main indexes, the CSI300 and the Shanghai Composite Index, both jumped nearly 3 percent to their highest level since March 2008, while Hong Kong’s benchmark Hang Seng index rose 1.5 percent. The Hang Seng Index settled Monday at 24,855.12 points, while turnover reached HK$140 billion, the loftiest for 2015. The H-shares index which tracks China stocks listed in Hong Kong performed even better by climbing 3.43 per cent on the day to end at 12,306.56. “The possible interest rate cut and relaxation policies by PBoC in China as well as (the) China Securities Regulatory Commission’s announcement to allow mainland fund houses to invest in Hong Kong stock market under the stock market connect scheme has led investors to speculate many of the 1.4 trillion yuan (HK$1.77 trillion) in Chinese funds may be invested in the local stock market soon,” said Ben Kwong Man-bun, a director of broker KGI Asia. “The bull run is likely to continue in the near future,” he said. China’s stock market shot up over 50 percent in 2014 on government easing hopes, and the market is up another 16 per cent this year, stoked by investors encouraged by Beijing’s willingness to open the spigot in supporting the economy. Liu Li-Gang, chief economist for Greater China at ANZ Bank, told the Post the PBoC’s decision to cut the downpayment rate is not enough though and urged the authorities to accelerate securitisation on mortgage loans as part of the efforts to increase financing for the housing sector. He forecast China’s GDP would slow to 6.5 to 6.8 per cent in the first quarter from a year earlier. "Given the economic situation is so weak, with the PBoC also starting to be alert on deflationary risks, the monetary policy needs to be eased significantly. So far all the measures rolled out have yet to solve the difficulties in financing, as companies’ actual funding costs still stay above 10 per cent," Liu said. The central bank should cut banks’ reserve requirement ratio and both deposit and lending interest rates so as to provide enough stimulus for the economy, he said. "We shouldn’t always wait until data becomes really bad to introduce new policies. That sort of policy reaction would be too late," Liu said. JP Morgan added: “Overall, we expect housing market correction will continue, but at a relatively modest pace through the course of this year. In particular, while the easing in housing policy will likely help to ease the downward adjustment in property prices going ahead, in our view real estate investment growth …will likely further decelerate from 10.5 per cent in 2014 to about 6 per cebt in 2015, which will continue to drag on economic growth.” Hong Kong Exchanges and Clearing took the lead in the rally by surging almost 8 per cent, followed by China Life at 5 per cent, and Bank of China at 3 per cent. The amount of turnover under the stock market connect also reached a record with north bound funds hitting 8.73 billion yuan and the southbound train at 5.59 billion yuan. On Sunday, People’s Bank of China governor Zhou Xiaochuan warned that China needed to be on alert against deflation given the slowdown in the economy. Zhou said the central bank still had room to use monetary levers if inflation continued to fall. "Quantitative easing is not the only tool, we also have price-based tools," he told a forum on Sunday, leading investors to believe interest rate cuts would be on the cards from China’s central bank in the months ahead.

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}“The bull run is likely to continue in the near future” - Ben Kwong Man-bun, a director of broker KGI Asia

“The bull run is likely to continue in the near future” - Ben Kwong Man-bun, a director of broker KGI Asia