China has officially launched policy measures to stimulate the real estate market, including lowering mortgage interest rates and reducing the initial down payment ratio.
On the 31st, the People's Bank of China, the country's central bank, and the China Banking and Insurance Regulatory Commission announced that the initial down payment (Shoufu) ratio for first-time homebuyers will be uniformly set at 20%, and 30% for second-time buyers. Shoufu is a kind of deposit ratio applied differentially by city, proportional to the purchase price when buying a home. Previously, the ratio varied depending on the buyer’s real estate purchase and loan history, but the government will now apply a uniform nationwide standard. This policy will take effect from the 25th of this month.
In China, when purchasing an apartment, buyers first pay the Shoufu, then receive a mortgage loan for the remaining house price and start repayment simultaneously. In some cities, the Shoufu ratio reached as high as 80%, placing a heavy burden on homebuyers.
This policy is interpreted as an effort to reduce the burden of real estate purchases and stimulate demand. Kelvin Lam, China economist at Pantheon Macroeconomics, told Bloomberg News, "The policy is moving in the right direction," adding, "It is a measure to stabilize the market and will help prevent further erosion of confidence."
Chinese authorities also lowered mortgage interest rates. The People's Bank of China announced on the 25th that it would reduce mortgage rates for first-time homebuyers. Commercial banks have already begun to respond. According to the quarterly monetary policy report released by the People's Bank of China, as of June, 100 out of 343 cities in China have lowered new mortgage limits or eased requirements. The national average mortgage rate in June was 4.11%, down 0.51 percentage points from the same period last year.
Deposit interest rates have also been reduced. From the 1st, 11 major banks including the state-owned Industrial and Commercial Bank of China simultaneously lowered deposit rates. Although there are slight differences among banks, local media reported that the general fixed deposit rates in China were cut by 0.1 percentage points for 1-year terms, 0.2 percentage points for 2-year terms, and 0.25 percentage points for 3-year and 5-year terms. This follows the People's Bank of China's reduction of the 1-year Loan Prime Rate (LPR) to 3.45% on the 21st of last month, a 0.1 percentage point cut from before. At that time, the 5-year LPR, which is linked to mortgage rates, was held steady at 4.2%.
Robin Xing, an economist at Morgan Stanley, said, "The central government will now ease fiscal policy and take measures to address local government debt issues," predicting, "We will see movements within a few months." Economist Sing forecasted, "These combined measures could help stabilize aggregate demand."
However, some analysts believe the government’s measures may not have much impact on the market. Neo Wang, Managing Director at Evercore ISI, described the measures as "not impressive," explaining, "Existing mortgages are already subject to the regulatory minimum interest rates, so further rate cuts will have little effect."
Meanwhile, these government measures come amid a rising debt default crisis at Chinese real estate developer Country Garden (Biguiyuan). According to Country Garden’s announcement, the company recorded a loss of 48.9 billion yuan (approximately 8.87 trillion won) in the first half of this year, marking the largest loss in its history. Country Garden stated, "The group’s liquidity is under unprecedented pressure due to difficulties in sales and financing," adding, "If performance continues to deteriorate, we may fail to meet debt repayment obligations, which could result in default."
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