China’s property sector is poised to play a healthier and more sustainable role in the economy, as policymakers introduce targeted measures to support the real estate market and drive economic growth.
On February 20, the People’s Bank of China announced a significant reduction in the over-five-year loan prime rate (LPR) by 25 basis points. This rate is predominantly used for benchmarking the pricing of mortgages. The move demonstrates the government’s commitment to stabilizing the real estate market without indicating a shift toward a more reflationary monetary policy.
While broad-based rate cuts are not deemed necessary at this stage, the targeted reduction aims to bolster confidence among homebuyers and developers. Coupled with adjustments in housing-market measures, the LPR cut is expected to promote investment and consumption, paving the way for a long-term recovery in property sales and investment.
China’s property sector has faced cyclical disruptions and structural challenges in recent times. Policy support spanning sales to investment and from demand to supply is needed to revitalize this once-robust growth engine of the Chinese mainland’s economy.
Monetary policy alone cannot fully revive home sales, especially since mortgage rates have already fallen significantly since late 2021. However, the latest LPR cut, alongside increased credit support to developers, should ease burdens on homebuyers and alleviate cash flow pressures for developers.
In recent quarters, a series of property-easing measures have been implemented. The reduction in the mortgage reference rate represents targeted support to stimulate demand in the housing market. Efforts include easing financing strains among developers, injecting liquidity into qualified property firms, and urging cities to establish coordinated mechanisms for financing the property industry.
Policymakers are signaling readiness to provide further assistance to both homebuyers and developers. This approach is expected to stabilize and restore confidence and interest in the property sector, laying a healthier foundation with a more sustainable growth pattern moving forward.
On the demand side, central and local governments are anticipated to continue optimizing policy measures to promote market stabilization and meet residents’ reasonable housing needs. This includes potential relaxation of curbing measures in higher-tier cities, adjustments in transaction taxes, reduction of down-payment ratios, and lower mortgage interest rates. Differentiated policies will be implemented according to local conditions to better address housing demands.
On the supply side, support will be provided to meet the reasonable financing demands of real estate enterprises, regardless of ownership. Priority will be given to qualified firms that focus on their main businesses and comply with regulations. Measures aim to help these firms reduce financing costs, expand funding channels, and enhance fund utilization efficiency.
The journey towards a full recovery of China’s property sector in 2024 may still be long and challenging. However, signs of stabilization in buying sentiment, home prices, and property sales are expected. Continued policy easing is anticipated until the market shows definitive signs of recovery. Investment in affordable housing programs and urban redevelopment could also buffer investment volatility and inject new driving forces into the sector.
In the longer term, the government aims to promote stable growth and sustainable development of the property industry, aligning with a new growth model that moves away from heavy reliance on investment. These developments are positive catalysts for the recovery and long-term development of commercial properties, including offices, shopping malls, and industrial properties like business parks and logistics facilities. Overall, the property sector is expected to assume a smaller yet healthier role in the Chinese mainland’s economy.
Reference(s):
Property sector expected to play healthier role in China's economy
cgtn.com
