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China to Cut Existing Mortgage Rates by End of October to Boost Property Market

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China’s central bank, the People’s Bank of China (PBOC), announced on Sunday that it would instruct commercial banks to lower mortgage rates on existing home loans by October 31. This move is part of broader policies aimed at supporting the country’s struggling property market amidst an economic slowdown.

The PBOC’s statement detailed that commercial banks should reduce existing mortgage rates in stages, with rates to be set at least 30 basis points below the Loan Prime Rate (LPR), China’s benchmark mortgage rate. On average, this adjustment is expected to lower rates by approximately 50 basis points.

Throughout 2023, China has introduced various policies, including lowering down-payment requirements and mortgage rates, in an attempt to revitalize its property sector. However, these measures have had limited success in boosting sales or improving liquidity in a market that remains cautious, contributing to a drag on broader economic growth.

Adding to these nationwide efforts, cities like Guangzhou announced the removal of all home purchase restrictions, while major urban centers such as Shanghai and Shenzhen revealed plans to relax housing rules for non-local buyers. In addition, the minimum down-payment ratio for first-time homebuyers in these cities will be reduced to 15%.

These policy adjustments come shortly after China launched its largest economic stimulus package since the COVID-19 pandemic, seeking to pull the economy out of a deflationary trend.

The need for urgent adjustments was highlighted earlier this month when new home prices fell at their fastest pace in over nine years, and property sales plunged by 18% during the first eight months of the year. By cutting mortgage rates, the central bank hopes to ease the financial burden on homeowners, stimulate the property market, and revive weak domestic consumption.

“As market-oriented reforms on interest rates deepen, and the relationship between supply and demand in the real estate market undergoes significant changes, the current mortgage rate pricing mechanism has exposed its shortcomings,” the PBOC said. “The public response has been strong, indicating that the mechanism requires urgent adjustments and optimization.”

China’s largest state-owned banks, including Industrial and Commercial Bank of China and China Construction Bank, have indicated their commitment to implementing these changes. The aim is to adjust mortgage interest rates in an orderly fashion, offering relief to homeowners.

While previous rate cuts primarily benefited new homebuyers, existing homeowners have continued to carry higher-rate loans. This has resulted in many households rushing to pay off their mortgages early, which in turn has constrained spending and consumption.

According to official data, the total value of individual mortgages in China stood at 37.79 billion yuan ($5.39 billion) as of June, marking a 2.1% decline year-on-year.

Additionally, the PBOC announced an extension of supportive measures for real estate developers, allowing access to loans and trust funds until the end of 2026 to help meet financing needs and stabilize the sector.

Chinese Yuan Reaches 16-Month High Against US Dollar Amid PBOC Stimulus Measures

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China’s yuan surged to its highest level in over 16 months on Wednesday, boosted by a series of stimulus measures introduced by the People’s Bank of China (PBOC) to bolster the slowing economy. The offshore yuan briefly appreciated to 6.9946 per dollar, a level not seen since May 2023. Similarly, the onshore yuan traded at 7.0319 against the greenback, marking its strongest performance since last May.

While the yuan’s rise is seen as a positive outcome of the PBOC’s policies, analysts caution that a stronger currency could hurt China’s export sector. Wei Liang Chang, FX and credit strategist at DBS, warned that policymakers must be careful not to allow the renminbi’s appreciation to weigh on the fragile economy. “Weak growth and low inflation in China should put pressure on the RMB going forward,” noted Edmund Goh, head of China fixed income at abrdn.

Ben Emons, founder of Fed Watch Advisors, added that rapid yuan strengthening could add deflationary pressure to China’s exports, which are already under strain. Unlike the U.S. dollar or Japanese yen, the Chinese yuan operates within a controlled exchange rate system. Onshore yuan trades within a 2% range around the midpoint set by the PBOC, while offshore yuan—traded mainly in Hong Kong, Singapore, and New York—faces fewer restrictions, allowing for greater market influence.

Despite the upward momentum, some experts expect the offshore yuan (USDCNH) to dip below 7.0 in the coming months. Zerlina Zeng, head of Asia Credit Strategy at CreditSights, predicts that China’s pro-growth stance and potential easing from the Federal Reserve could lead to further yuan appreciation.

Tuesday’s announcement by the PBOC included key moves such as cutting the reserve requirement ratio (RRR) by 50 basis points and lowering the 7-day repo rate by 0.2 percentage points. PBOC Governor Pan Gongsheng described these actions as necessary to alleviate the “clogged” monetary transmission channel, hindered by the property sector’s drag on bank balance sheets and a resulting “crisis” in consumer confidence.

Following the central bank’s stimulus, China’s bond market saw increased demand, with 10-year and 30-year bond yields hitting record lows. Stronger bond demand generally strengthens a country’s currency, and Chinese bonds rallied accordingly. Yields on 10-year bonds rose by 5 basis points to 2.074%, while 30-year bond yields reached 2.182%.

Chinese equities also responded favorably. The Hang Seng Index in Hong Kong posted its best performance in seven months, while the CSI 300 Index on the mainland saw its largest one-day gain in over four years.

 

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Property stocks in Hong Kong surged on Tuesday following significant announcements by Chinese financial regulators regarding measures aimed at easing the financial strain on households and bolstering the real estate sector. The People’s Bank of China (PBOC) Governor Pan Gongsheng revealed key initiatives during a press conference, including a reduction in mortgage interest rates and a lower down-payment requirement for second homes.

The PBOC’s new policy will lower the interest rates on existing mortgages by 0.5 percentage points and reduce the down-payment ratio for second homes to 15% from the previous 25%. This marks the first time that down payment requirements for first and second homes have been aligned. The central bank expects this move to ease household mortgage payments by approximately 150 billion yuan ($21.25 billion) annually.

Following the announcement, the Hang Seng Mainland Properties Index rose as much as 5%, and real estate developers like China Resources Land, Longfor Group Holdings, and China Overseas Land & Investment experienced significant gains of 4.49%, 4.57%, and 5.41%, respectively.

China’s policymakers have been increasing efforts to support the property market, which has struggled with declining investments and falling demand. However, past measures have had limited impact, with property-related investments falling by more than 10% in the first eight months of this year compared to the previous year.

Alongside the mortgage relief measures, Pan Gongsheng also announced a 50 basis point cut to the reserve requirement ratio (RRR), allowing commercial banks more liquidity to support lending. This move is part of broader efforts to stabilize the property sector and reduce household financial burdens.

While the mortgage rate cuts may alleviate financial pressure on existing homeowners, analysts are cautious about the long-term impact on the housing market. William Wu, an analyst at Daiwa Capital Markets, noted that the cuts may not stimulate new demand for homes and could slow down further reductions in loan prime rates. Bruce Pang, chief economist at JLL, emphasized the need for additional measures to support developers and stimulate property investment and construction activities.

There are also discussions underway about allowing homeowners to renegotiate their mortgage terms with lenders before January next year, potentially offering further relief to struggling households. This could include the option for homeowners to refinance with different banks, a practice that has not been allowed for several years.