On February 20, China announced its largest-ever reduction in the over-five-year Loan Prime Rate (LPR) by 25 basis points. This move signals a moderate policy stance aimed at providing flexibility and targeted support for the country's real estate market and the broader economy, rather than indicating a shift towards a more reflationary monetary policy.
The People's Bank of China is demonstrating its commitment to stabilizing the property sector by optimizing housing-market measures and trimming the over-five-year LPR. These actions are intended to restore confidence, promote investment and consumption, and lay the groundwork for a long-term recovery in property sales and investment.
Despite these efforts, China's property sector continues to face significant challenges. Policymakers recognize that supporting the sector requires comprehensive measures addressing both demand and supply aspects. While monetary policy is a critical tool, it alone cannot revive home sales, especially since mortgage rates have already decreased by nearly 200 basis points since late 2021.
In addition to the LPR cut, the government is increasing credit support to developers to alleviate the financial pressures on homebuyers and improve developers' cash flow. Recent property-easing measures include the introduction of a whitelist mechanism for loans to eligible developers and property projects, as well as initiatives to inject liquidity into qualified property firms.
On the demand side, central and local governments are expected to continue refining policy measures to stabilize the real estate market. This includes gradually relaxing restrictions in higher-tier cities, adjusting transaction taxes, reducing down-payment ratios, and lowering mortgage interest rates. These differentiated policies aim to meet the rigid housing demand and enhance housing conditions for residents.
On the supply side, the focus is on providing reasonable financing for real estate enterprises that comply with regulations and have strong market reputations. Supportive measures are designed to reduce financing costs, expand funding channels, and improve the efficiency of fund utilization. This approach is expected to normalize cash flow, investment activities, and the delivery of unfinished projects for qualified firms.
Looking ahead to 2024, the path to a full recovery of China's property sector may be gradual and uneven. Indicators such as buying sentiment, home prices, and property sales are anticipated to show signs of stabilization, while property investment might experience a slight reduction in its decline. Continued policy easing and targeted stimulus packages for affordable housing and urban redevelopment are likely to support the sector's stability and inject new growth drivers.
In the long term, the Chinese government aims to foster a stable and sustainable property industry that aligns with the country's new growth model, moving away from heavy reliance on investment. This strategy promises a healthier and more resilient role for the property sector within China's economy.
Reference(s):
Property sector expected to play healthier role in China's economy
cgtn.com
