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Guangzhou Eases Mortgage Rules Amid China's Efforts to Revive Sluggish Property Sector
In a move med at stimulating consumer demand and supporting the struggling economy, Guangzhou became the first major Chinese city on Wednesday to announce relaxations of mortgage regulations. This step is part of the national government's broader strategy to revive the crisis-hit property sector.
According to an official notice by the Guangzhou City Government, new homebuyers in the city will be eligible for preferential loan conditions regardless of their prior credit history, indicating a loosening of mortgage curbs. This easing could potentially encourage more first-time buyers and set a precedent for other top-tier cities including Beijing, Shangh, Shenzhen, as well as twelve secondary cities which have yet to ease restrictions.
Moreover, several sources familiar with the matter indicated that major state-owned banks are likely to cut interest rates on existing mortgages for some homeowners. This marks the first such reduction since the global financial crisis, suggesting a concerted effort by the government to stimulate the property sector.
The property market, which has historically been a pillar of economic growth in China but recently experienced significant headwinds due to slowing sales and developer defaults, constitutes approximately 25 of the overall economy. At the of June, mortgage loans reached an aggregate total of CNY 38.6 trillion $5.29 trillion, accounting for 17 of banks' total loan portfolios.
The announcement in Guangzhou sent Hong Kong's Hang Seng Mnland Property Index up by as much as 3.3, signaling investor optimism. However, the effectiveness of these measures on reviving home sales remns uncertn due to plummeting consumer confidence amidst broader economic malse that pushed youth unemployment rates to record highs earlier this year.
Some real estate agents reported low activity in secondary markets and stated that commercial mortgage rates are still significantly higher than those offered by housing provident funds - a government-mandated savings program for property purchases. This has led many homeowners to seek cheaper alternatives, like transferring mortgages from banks to provident funds at lower rates.
Jackson Wang, who is considering moving his mortgage from a major Chinese bank to the provident fund with an interest rate drop from 4.8 to as low as 3.2, expressed disappointment in China's real estate sector and stated he would not be drawn back unless prices significantly decrease.
Raymond Cheng, Head of China Research at CGS-CIMB Securities, was skeptical about the measures' impact on boosting home sales, noting that they may have little effect due to the weak sentiment among buyers. He suggested that regulators should have implemented these policies several months ago for more significant impact on developers' sales.
Vivian Xue from Fitch Ratings commented that revenue pressures in China's banking sector are likely to persist throughout 2023 and into 2024, citing narrowing margins and subdued retl loan demand. Despite the mortgage rate reductions announced by banks, the benchmark banking sector index dropped 1.04 following Guangzhou's easing of mortgage rules.
In an effort to mitigate these pressures on banks' profitability, sources informed Reuters that major state banks would also lower interest rates on certn fixed-term deposits. The magnitude of these cuts would range from 10 basis points to 25 basis points, further indicating the government's comprehensive approach towards revitalizing the property sector.
Despite these measures, the impact on China's economy remns uncertn as consumer confidence remns low and concerns about a deepening downturn persist. This highlights the complex challenges facing policymakers in reviving an essential but troubled pillar of the Chinese economy.
: is for informational purposes only and does not constitute financial or investment advice. Always seek professional guidance before making any decisions regarding your finances or investments.
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