Lower rates, homebuyer-friendly norms likely to lift market mood

China's recent policy incentives to help the troubled real estate sector recover sooner than later are shoring up market sentiment, creating a potential positive direction for the future, experts said.

"Various favorable policies have been successively introduced recently, like reducing down payment ratios, lowering mortgage interest rates and adjusting eligibility criteria for first-time homebuyers. These measures are very conducive to reducing the costs associated with buying homes and increasing the enthusiasm for buying homes in the future," said Yan Yuejin, research director of Shanghai-based E-House China Research and Development Institution.

"China's real estate market is showing some positive signs of a steady recovery. For instance, real estate enterprises in Guangzhou, Guangdong province are actively promoting properties for sale. This may help boost sales during the traditional peak period of September and October. Any such boost would also brighten the market sentiment."

Market expectations are also improving, helping bolster the confidence of homebuyers, Yan said. "Inquiries from prospective homebuyers in Guangzhou are rising sharply. We are optimistic about the market performance during the next two months."

On Thursday, the People's Bank of China, the country's central bank, and the National Financial Regulatory Administration said in a joint statement that homebuyers can negotiate with lenders to reduce the interest rates on their mortgages from Sept 25 and enjoy reduced down payments.

The PBOC said minimum down payment nationwide will be 20 percent of the total property price for first-time homebuyers and 30 percent for second-time homebuyers.

Yan of E-House said that prior to the PBOC announcement, many cities had stipulated a minimum 40 percent down payment for second-time buyers.

For second-home mortgages, the floor for interest rate is adjusted to the level of the loan prime rate plus 20 basis points. This marked a notable reduction from the previous floor of the LPR plus 60 bps.

This week, all four first-tier cities, Beijing, Shanghai, Guangzhou and Shenzhen, eased policies on residential property purchases.

Households in those cities with mortgage records but no local home ownership will be treated as first-time homebuyers, eligible for favorable down payments and lower mortgage rates.

Liu Ge, senior researcher at the Chongyang Institute for Financial Studies, which is part of the Renmin University of China in Beijing, said a reduction in mortgage interest rates will lead to a win-win scenario for both homebuyers and commercial banks, against the backdrop of an increasing number of people seeking to repay their home loans earlier than scheduled.

Early repayments may affect banks' profits. The policy to lower mortgage rates may also boost overall consumption as people will have more disposable income. Market-oriented adjustment will play an essential role in reducing mortgage rates, Liu said.

Agreed Yan. The adjustment of mortgage rates, he said, resulted from the rising number of early repayments over the past two years and the pressure of higher monthly payments on households. In this context, commercial banks are said to be formulating new regulations and contracts to address the needs of different groups of customers.

This week saw China Evergrande Group and Country Garden, two of the biggest names in China's property market facing financial trouble, announce not-so-positive first-half results, spooking the industry and stock-market investors.

On Monday, the debt-laden Evergrande, which was suspended from trading in Hong Kong since March 21, 2022, resumed trading.

Yan said the resumption involved several key steps, including the issuance of long-delayed financial reports, the utilization of bankruptcy protection in the United States to address overseas debt issues, the strengthening of internal assessment to enhance business operations and proactive investments in the new energy vehicle industry to better alleviate debt pressures.

"The resumption sends a highly positive signal to the industry. As the real estate sector continues to recover, the business performance of various realty companies is likely to see sustained improvements, which is expected to yield improved financial performance and better capital market indicators," Yan said.