Interest rates cut for existing first-home mortgages
Three of China’s major state banks announced on Thursday that they will lower interest rates on existing mortgages for first-home loans. The move is one of several support measures flagged by Beijing in recent weeks for the country’s crisis-ridden property sector amid mounting concerns over the health of the world’s second-largest economy.
Interest rates on existing first-home loans will be cut to the level in place when a home was purchased, the Industrial and Commercial Bank of China Ltd (ICBC), Agricultural Bank of China and Bank of China Ltd (BOC) said in statements. The reduction will come into effect on Sept. 25, they said.
The banks said the rate cut aims to “support the healthy development of the housing market, protect the legitimate rights and interests of homebuyers, and promote the steady and sound development of the national economy”.
A boost for homebuyers and developers
The rate cut is expected to benefit millions of homebuyers who have taken out mortgages from the three banks, which account for about 40% of China’s banking assets. According to official data, China’s home loans totalled 38.6 trillion yuan ($5.3 trillion) at the end of June, representing 17% of banks’ total loan books.
The rate cut will also help ease the pressure on property developers, who are facing a liquidity crunch as sales slump and regulators tighten financing rules. The property sector accounts for about a quarter of China’s gross domestic product (GDP) and is a major source of local government revenue.
Some analysts said the rate cut could signal more easing measures to come from the central bank, such as lowering the reserve requirement ratio (RRR) or cutting the benchmark lending rate. However, others cautioned that the move does not necessarily mean a shift in the overall monetary policy stance, which remains prudent and targeted.
A response to the Evergrande crisis
The rate cut comes amid growing fears over the fate of China Evergrande Group, the country’s largest property developer by sales, which is struggling to repay its massive debts of more than $300 billion. Evergrande has warned of a risk of default and has been scrambling to sell assets and raise cash to appease its creditors and investors.
Evergrande’s woes have sparked protests by homebuyers, suppliers and employees across China, as well as jitters in global financial markets. The Chinese authorities have urged Evergrande to resolve its debt problems in an orderly manner and avoid systemic risks.
The rate cut by the three state banks is seen as a gesture of support for the property sector and a way to prevent social unrest and contagion effects from spreading. However, some experts said the move is unlikely to have a significant impact on Evergrande’s situation, as it only applies to existing mortgages and not new loans.
