Beijing. China has announced mortgage subsidies and changes to bank lending. The Chinese economy wants to get the sluggish economy going again.
The state will cover part of the interest payments for certain cheaper apartments nationwide. Buyers of their first property should receive support for a maximum of five years, which corresponds to an annualized rate of one percentage point of the mortgage amount. The Ministry of Finance announced this late on Tuesday.
The government also announced several steps to encourage banks to lend in selected areas such as infrastructure and technology. The central bank increased the volume of a refinancing program to promote technological innovation and equipment modernization by 200 billion yuan (about 30 billion dollars), to a total of 1.4 trillion yuan. At the same time, it increased the proportion of eligible loans that can be financed through the program.
Apartments with a maximum area of 120 square meters and a purchase price of a maximum of 1.5 million yuan are eligible. The regulation is due to come into force on October 1st and initially apply for one year.
According to regulators, the grant program is intended to reduce housing costs for lower-income households - including newcomers to cities, college graduates and non-management employees.
The State Council had already announced on Monday that it would examine further measures to stabilize the ailing real estate market and support economic growth. The relatively limited scope of the latest stimulus package suggests that further steps could follow.
The impact of the new measures is “very limited,” said Daniel Fan, an analyst at the financial data and media company’s Bloomberg Intelligence research unit.
Growth in China is likely to have weakened further in the third quarter and thus fallen below the lower end of the government's annual target. In the previous three months it was 4.3 percent.
Consumption is stagnating, while investments are declining even more sharply. The downturn in the real estate market that has been going on for years, with prices for new buildings falling for more than three years, continues to put a considerable strain on the economy.
Robin Xing, chief China economist at US bank Morgan Stanley, described the overall package as “still modest”. It is unlikely to be enough to reverse households' debt-induced pullback, which is marked by a lack of confidence, he said. Xing expects real gross domestic product to grow for the full year near the lower end of the target range of 4.5 to 5 percent.
The average mortgage rate for first-time buyers in 42 major cities was unchanged at 3.05 percent in September for the eleventh month in a row. This emerges from data from the Singapore-based company Data Motion International Trading.
This means the rate is significantly higher than the yield on ten-year Chinese government bonds and the rental yields in large cities.
One reason is that China left its key lending rates - the so-called loan prime rate, a key benchmark for pricing bank loans - unchanged for the 16th consecutive month in September. Banks typically provide mortgages to first-time buyers at rates slightly below this reference.
The central bank's scope for further interest rate cuts in the world's second-largest economy is limited: Chinese banks' profit margins are under pressure, while concerns about the quality of their assets are growing. The institutions' net interest margin, an important measure of their profitability, remained near a record low of 1.41 percent in the last quarter.
