The central bank kept interest rates frozen for 10 consecutive days in Q3, relaxed the loan percentage for second households to 70%, and lifted the deadline for developers to purchase land and start construction.

The Central Bank held a joint meeting of governors and supervisors in the third quarter on the 17th. After the hawkish oath in the second quarter, it focused on stable fundamentals and solid industrial development, followed its own path, kept the policy interest rate unchanged, and did not increase the deposit reserve ratio. The real estate credit control simultaneously released room for adjustment, relaxed the loan ratio for second homes from 60% to 70%, and clearly lifted the time limit for construction of land purchase loans for builders. As the housing market continues to cool, central bank policies have begun to include preventing "liquidity shocks" as an important consideration.

Huang Shuwei, director of Colliers International Real Estate Owner Representative Services Department, said that this policy adjustment reflects that the risk structure of the housing market is changing. The biggest pressure on the housing market now has shifted from rising and falling prices to handing over homes, reducing cash flow and financial risks for developers.

Huang Shuwei pointed out that in recent years, the supply of new houses has gradually increased from about 120,000 during the epidemic to nearly 180,000, and a large number of new houses have entered the delivery period. There is a time lag between the construction investment cycle and the housing market boom cycle. When supply peaks hit credit controls, builders’ cash flow becomes a key variable in the market. Especially after the launch of credit controls in 2020, followed by global interest rate cuts, quantitative easing and the expansion of the AI ​​industry, the landscape of residential demand and supply has been reshuffled. This wave of new supply has locational demand driven by industrial clusters and public construction, but there is still a time lag for the construction to be completed. Whether the house handover can be successfully completed affects not only the operations of the builder, but also the safety margin of the bank's credit assets.

Huang Shuwei believes that relaxing the loan percentage for second homes will help to clear the exit of home delivery in the owner-occupied market, and at the same time lift the construction deadline for land purchase loans. The main consideration is that the percentage of land purchase loans is still low, and the investment environment and regulations have become stricter. The cost of land hoarding for builders is too high, and credit resources are still clearly constrained. Appropriate fine-tuning can increase liquidity and avoid accidental losses.

In terms of housing market prices, Huang Shuwei believes that since last year, whether it has excluded Xinqing’an from Article 72-2 of the Banking Law, or extended the housing exchange cooperation, or even handed over the concentration control of real estate loans to the independent management of banks, it shows that the central bank has gradually relaxed the allocation of credit resources after measuring various indicators and credit quality. It is expected that transaction volume will gradually stabilize, but prices are still fiercely differentiated and re-anchored.

Capacity recovery may be faster than price rebound, and total price burden, first-time purchase demand and product sales speed will once again become the three pillars of pricing for builders. The core issues faced by builders are still the sale of surplus housing and the reduction of leverage. Policies provide a liquidity window, and the market must ultimately rely on price concessions to clear the market.

Zhuang Simin, deputy manager of CITIC Housing Research and Development Office, said that the central bank adopted a policy combination of "holding interest rates steady and slightly relaxing credit controls". While taking into account economic and financial stability, it also released a signal to support owner-occupied demand, which helped boost market confidence and brought positive support to the housing market atmosphere in the fourth quarter.

In response to the "10-consecutive freeze" on interest rates, Zhuang Simin pointed out that the surge in global crude oil prices has once again ignited the threat of inflation. The US Federal Reserve (Fed) also announced a one-point interest rate hike today, adding more uncertainty to the global interest rate and financial environment. Under this circumstance, the central bank did not follow up on raising interest rates, mainly because domestic inflation is still controllable, and economic growth this year is better than expected. If the monetary environment is tightened rashly, it may increase corporate financing costs and put additional pressure on some traditional industries and the domestic demand market.

As for credit control, Zhuang Simin said that with the gradual decline in real estate loan concentration and real estate loan ratios, selective credit control has achieved a certain cooling effect. At this time, the maximum interest rate limit for second-family home purchase loans for natural persons was raised from 60% to 70%. Although the increase is only 10%, it is enough to reflect the central bank's goodwill towards the owner-occupiers. For people who had previously postponed home purchases due to self-prepared funds or financial conditions, they may re-evaluate their home purchase plans after the loan conditions are relaxed, thereby stimulating the release of some potential demand.

On the other hand, the central bank has simultaneously removed the requirement that land purchase loans be "tied to the commencement of construction within a certain period." In the future, the loan will be returned to banks' prudent handling based on credit practices and case conditions. This can also increase the flexibility of builders in land development, project arrangements, and capital allocation, and alleviate the financial pressure of builders.

Zhuang Simin said that the fourth quarter itself is the peak season of the traditional real estate market. With the slight relaxation of credit controls, combined with the wealth effect brought about by inflation expectations and the enthusiasm of the stock market, market transaction volume is expected to rebound compared with the third quarter. After this wave of consolidation in the housing market, buyers’ mentality has shifted from the past blind pursuit of price to rational choice. Buyers will pay more attention to price and property conditions. Therefore, it is expected that the housing market will show a "moderate recovery" in the fourth quarter, with first-time purchase and owner-occupied demand still being the main force in the market.

Huang Shuwei believes that the central bank's "continuous freeze on interest rates and fine-tuning of controls" will provide a soft landing window for the housing market. The subsequent market will show a pattern of gradual recovery in transaction volume and continued price differentiation; the key to the residential market is handover and sales, while the key to the commercial market is yield and cash flow. The next stage of price discovery for real estate will extend from capital costs to asset quality.