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China Broadens Real Estate Lending Support to Bigger Cities

The moves signal that the policy loosening emerging in smaller cities with weaker economies is starting to spread.

(Bloomberg) -- China’s efforts to prop up the beleaguered real-estate market are expanding to some of the country’s largest cities, with authorities moving to stem the economic damage from the slump.

The Shanghai branch of China’s central bank urged commercial banks to accelerate real-estate loans and ensure growth in both residential mortgages and loans to developers over the next few months, people familiar with the matter said Tuesday. Meanwhile, banks in the southern metropolis of Guangzhou have started cutting mortgage rates for some homebuyers. 

The moves signal that the policy loosening emerging in smaller cities with weaker economies is starting to spread to some of its largest hubs, as policy makers try to engineer a soft landing for the property market. While most residential sales come from third- and fourth-tier cities, large urban centers like Shanghai are often considered a bellwether of buyer confidence. 

In previously unreported guidance earlier this month, regulators in Shanghai said growth in mortgages shouldn’t be slower than the expansion in other loans, the people said, asking not to be identified discussing private information. The Shanghai branch of the People’s Bank of China didn’t reply to a request for comment.

In Guangzhou at least seven lenders, including China’s four biggest banks, have lowered their mortgage rates by 20 basis points, Nanfang Daily reported Monday afternoon. That follows cuts last week to mortgage down payments for some homebuyers in several cities including Chongqing, according to local media reports.

The rate cut in Guangzhou is “the most important change of policy in the property sector so far this year,” Zhang Zhiwei, chief economist at Pinpoint Asset Management, wrote in a note before Bloomberg reported the guidance in Shanghai. “While the market expects the policy in the property may be fine-tuned, investors didn’t expect a change in a tier 1 city will happen so quickly.”

Home sales in China have been falling since July, exacerbating a cash crunch among developers. Those in the top-tier cities started dropping late last year, data from China Real Estate Information showed, after regulators tightened financing rules to defuse risks.

The news on the mortgage rate cuts in Guangzhou boosted iron ore prices in Singapore Monday, before dropping slightly Tuesday. It also spurred speculation that easier mortgages mean there could be less need for the People’s Bank of China to further reduce benchmark interest rates, helping to push down China’s bond futures.

Read more: China Urges Banks to Boost Property Lending on Default FearsChinese Banks Cut Borrowing Costs as PBOC Signals EasingChina’s Latest Default Warning Takes Shock Factor to Extreme Crisis in China’s Property Industry Deepens With No End in Sight

The central bank has pivoted to easing mode to stabilize growth and stem financial contagion from a real-estate sector that accounts for about a quarter of economic output. Last month, the de facto benchmark lending rates were lowered after the central bank cut policy interest rates and pledged more stimulus.

While the five-year loan prime rate, a reference for long-term loans including mortgages, was only reduced by a smaller 5 basis points, it paved the way for banks to lower mortgage rates. 

State media signaled Tuesday that the support for credit would continue even though policy rates and loan rates were kept unchanged this month, with the China Securities Journal publishing a front-page report Tuesday quoting analysts saying there is still room to cut rates and the bank reserve requirement ratio.

--With assistance from Lin Zhu.

© 2022 Bloomberg L.P.

TAGS: Development
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