China’s developers gain on reports of Shanghai cutting first-home mortgage rates to revive market
China’s biggest commercial city already offers the lowest rate among first-tier mainland cities
Shares of China’s property developers rose on Friday on reports that two state-owned banks in Shanghai have lowered their first-home mortgage rates to ease buying restrictions after two years of controls to cool the overheated market.
Property agents and mainland state media said borrowers would be eligible for a 10 per cent discount off the benchmark interest rate, up from a previous 5 per cent, at the Shanghai branches of the Industrial and Commercial Bank of China and the Agricultural Bank of China from Friday. This means the rate will be lowered to 4.41 per cent from 4.655 per cent, they said.
In the mainland, China Vanke jumped 3.1 per cent to 23.18 yuan, China Merchants Shekou industrial Zone Holdings was up 2.6 per cent to 17.27 yuan and Poly Real Estate gained 1.5 per cent to 11.70 yuan. Nacity Property Service jumped 10 per cent to 26.80 yuan and Shanghai Wanye Enterprises surged 6.5 per cent to 12.44 yuan. A property stock gauge under the benchmark Shanghai Composite Index rose 1.1 per cent.
In Hong Kong, Agile Group rose 4.7 per cent to HK$12.34. Guangzhou R&F Properties soared 5.6 per cent to HK$15.02 and Sunac China Holdings was up 5.5 per cent to HK$26.10.
The rate cut was refuted by the two banks after the market closed, which analysts said, reflected the level of sensitivity to China’s mortgage policy. But an ICBC executive confirmed that the lenders were compelled to retract the cut following “intense reaction in the market” that led to share price swings.
ICBC issued a statement on Friday reiterating that its mortgage policy remains unchanged.
“ICBC has always clung on to the policy of ‘differential credit policy for different homebuyer groups’. … we will strictly implement the state policy on property market,” it said.
E-house China E&D Institute analyst Yan Yuejin said the retraction represented a rift between the central government and banks’ interests.
“From the banks’ commercial perspective, they are inclined to ease the policy,” Yan said, adding that with funding costs lowered for banks, lenders were motivated to cut rates.
The overnight Shanghai Interbank Offered Rate has dropped to its lowest level since August 2015.
A lower mortgage rate, if implemented, would have been an initial reversal to the past two years’ effort to rein in home prices, underscoring the authorities’ attempt to revive a sluggish Shanghai property market to help fuel growth amid mounting worries of the overall economic slowdown.
In July, secondary home market transactions fell to 13,800 units from 15,500 units in June, and against the monthly 18,000-20,000 unit range for the past five years, according to Centaline Property Shanghai.
The official secondary home price index of China’s biggest commercial city has also sunk 1.83 per cent in June on the year, slumping for seven straight months.
Yan said first-time homebuyers drove China’s consumption, which could boost economic growth as the trade war with the US worsens.
Shanghai already offers the lowest mortgage rate among China’s first-tier cities, regardless of whether ICBC and Agricultural Bank cut their rates. Local branches of the China Construction Bank offer 10 per cent discount to first-time buyers.
In contrast, Beijing’s mainstream mortgage rate for first-time buyers stands at 10 per cent above the benchmark rate, and some joint-stock commercial banks offer a higher 15 per cent. Last month, banks in Shenzhen raised the first-home mortgage to 15 per cent above the benchmark from 10 per cent, while those in Guangzhou lowered the rate to 10 per cent above the benchmark from 15 per cent.
Additional reporting by Zhang Shidong