By Vivek Kumar
China’s central bank opted to keep its key lending rates steady during its routine monthly assessment on Monday, with the one-year loan prime rate (LPR) holding at 3.45 per cent and the five-year LPR at 3.95 per cent.
This move follows China’s recent introduction of significant measures aimed at stabilizing its troubled property market. These measures included injecting an additional 1 trillion yuan into the market and easing mortgage regulations to stimulate housing demand, as announced by the central bank.
Despite a stronger-than-expected economic growth at the beginning of the year, China’s overall economic performance is being dragged down by the slowdown in its real estate sector, which has historically played a substantial role in the country’s economy.
To counter the sluggish demand in the property market, the central bank announced its intention to lower mortgage interest rates and reduce down-payment requirements for potential homebuyers on Friday. Most loans in China are linked to the one-year LPR, while the five-year rate primarily affects mortgage rates.
He Lifeng, a high-ranking official within the Communist Party, proposed on Friday that local governments should intervene by purchasing unsold homes and converting them into affordable housing, aiming to alleviate the challenges faced by the property sector.
Simultaneously, Deputy Governor Tao Ling of the People’s Bank of China revealed that the central bank would allocate 300 billion yuan to financial institutions. This funding is aimed at assisting state-owned enterprises at the local level in acquiring unsold completed apartments.
“The impact of the rescue plan will be mixed. Under the destocking plan, the government is virtually a single buyer acquiringthe existing inventory and redistributingto potential buyers who are financially insufficient or unwilling to buy at the prevailing price,” said ZhaoPeng Xing, Senior China Strategist at ANZ.
“Our view is that the rescue plan will be sufficient to stabilise the market outlook on the supply side,but the demand-side measures are insufficient.”
Recent government data underscored the severity of the property market’s downturn, with property investment declining by 9.8 per cent in the first four months of 2024, an acceleration from the 9.5 per cent decline recorded in the first quarter.
Additionally, new property sales saw a significant drop of 28.3 per cent in the January-to-April period, compared to a 27.6 per cent decrease in January-March. New home prices continued their downward trend, falling for the tenth consecutive month by 0.6 per cent month-on-month in April, marking the sharpest decline since November 2014.
