On September 24, a significant set of financial policies aimed at revitalizing the Chinese real estate market was announced by major institutions, including the People’s Bank of China (PBOC) and the National Financial Regulatory Administration. This initiative, often dubbed a “financial combo,” comprises measures such as interest rate cuts and reductions in existing mortgage rates.
Experts view these five key policies as a strategic “five arrows” approach, designed to positively influence both China’s macro economy and the real estate sector, ultimately stabilizing growth expectations and boosting market confidence.
The first “arrow” focuses on cutting the reserve requirement ratio and interest rates. Although this isn’t a direct real estate policy, it is expected to create a more favorable environment for housing. The PBOC announced a 0.5% cut in the reserve requirement ratio, injecting around 1 trillion yuan (RMB) into the financial markets. Additionally, the rate for 7-day reverse repos was decreased by 0.2%, which should prompt a similar drop of 0.2 to 0.25 percentage points in the Loan Prime Rate (LPR).
Chen Wenjing, the policy research director at the China Index Academy, remarked that these measures are likely to increase liquidity and lower financing costs, thereby boosting market confidence and supporting stable macroeconomic operations. Moreover, since mortgage rates are tied to the 5-year LPR, these recent cuts will effectively reduce borrowing costs for homebuyers.
The second “arrow” targets the reduction of existing mortgage rates. PBOC Governor Pan Gongsheng has indicated a commitment to guide commercial banks in aligning existing mortgage rates with those of newly issued loans, projecting an average decrease of around 0.5%. This policy is anticipated to lessen total interest payments for households by about 150 billion yuan annually. Zou Linhua, head of the Housing Big Data Project at the Chinese Academy of Social Sciences, noted that the primary beneficiaries will be homebuyers from 2019 to 2021 and those purchasing second homes, making up roughly one-third to one-half of all current mortgages.
Zou also pointed out that while a decrease in existing mortgage rates might seem to lower banks’ expected interest income on a micro level, it could reduce systemic risks in the banking sector and lower overall bad debt ratios on a macro scale.
Li Yujia, chief researcher at the Guangdong Institute of Urban Planning and Design, emphasized that with interest rates in a prolonged downward trend, delaying loan applications could be the most strategic approach. The recent interest cuts have eased concerns among potential homebuyers about the normalization of lower existing mortgage rates. Following this announcement, the trend of early mortgage repayments is expected to notably decline. For example, a 50 basis point decrease on a 1 million yuan loan over 30 years could save borrowers around 300 yuan per month, providing essential financial relief for average-income households and stimulating consumption.
The third “arrow” involves standardizing the minimum down payment ratio for mortgage loans at 15%. Chen Wenjing noted that in many second- and third-tier cities, the down payment requirement for second homes is already low; thus, further reductions may have limited impact. However, in major cities like Beijing, Shanghai, and Shenzhen, many second-home buyers employ “sell one, buy one” strategies, which require funds from the sale of existing properties. Adjusting the down payment for second homes will enhance liquidity between new and existing property transactions.
The fourth “arrow” aims to optimize the re-lending policy for affordable housing. Previously, the PBOC allocated 300 billion yuan for re-lending to support affordable housing projects. The recent policy change has increased the share of central bank funding from 60% to 100%, which is expected to enhance the lending capabilities of commercial banks and encourage local efforts to acquire unsold properties for affordable housing.
The fifth “arrow” promotes the acquisition of existing land from real estate companies. The government has proposed allowing policy and commercial banks to provide loans for eligible enterprises to acquire land from struggling real estate firms, easing the financial burdens these companies face. If needed, the PBOC may also offer re-lending support.
Yan Yuejin, deputy director of the Shanghai E-House Real Estate Research Institute, emphasized that these clear guidelines regarding land acquisition would substantially enhance the capacity and efficiency of financial resources in revitalizing existing land assets, indicating that the process for repurposing land held by real estate firms is about to move into an actionable phase.
Beyond these five arrows, there are additional proposals for extensions to two real estate financial policy documents, suggesting that transformative changes may soon unfold in the Chinese property market as these policies take effect.
