China ramps up housing support; analysts say not enough for market

China’s central government is allowing nearly two dozen cities to lower mortgage rates for purchases of primary residences, in a move analysts said was likely to provide only limited help for the country’s struggling housing market.

Eligible cities will be able to maintain, lower or remove the minimum interest rates set for loans that go toward primary-home purchases in their jurisdiction, according to a statement from the central bank and banking regulator late on Thursday evening Beijing time. The permission will last through year-end and the new rates can be negotiated between banks and their customers.

The new policy will apply to cities where newly constructed housing prices declined during the June-through-August period both compared with the previous three months and with the same period of 2021, according to the statement. Existing rules for second-home mortgage loans remain unchanged. Earlier on Thursday, China’s central bank vowed to accelerate usage of targeted loans to ensure delivery of delayed property projects.

“We may see more local governments ease their local housing policies in coming months, but a significant property sector recovery should require more policy effort and time,” Goldman Sachs Group Inc. economists Lisheng Wang, Hui Shan and Maggie Wei wrote in a report.

The more than year-long slump in the housing market has continued to drag on the economy, adding to the damage to growth and activity from Beijing’s Covid Zero policy. While the economy looks to have rebounded from the April-through-June period, when the lockdowns of Shanghai, Jilin province and other major economic hubs almost drove gross domestic product to contract, many economists are lowering their expectations for the full year. 

New home prices in China’s top 70 cities dropped 0.29% in August from July and were down 2.1% from a year earlier. Downward pressure on home prices was seen across the nation last month, with the trend worst in third-tier cities, where declines accelerated.

A total of 23 cities out of the 70 largest ones in the country are eligible for the rate-cut discretion, according to a cross check by Bloomberg of the new home price figures for the given months provided by China’s National Bureau of Statistics.

None of the four largest cities -- Beijing, Shanghai, Shenzhen and Guangzhou -- qualifies for the relaxation list, according to the data compiled by Bloomberg.

Prior to the policy change, Chinese banks already could cut mortgage rates to a record low of 4.1%, after the five-year loan prime rate was reduced this month to boost housing demand. 

“I’m skeptical that it will have a large effect,” said Craig Botham, chief China economist at Pantheon Macroeconomics in London. “Rates and other restrictions have been eased several times already this year, with little discernible uplift to mortgage borrowing.” 

It’s not the supply of credit that’s the problem, it’s the lack of confidence in the market, driven by falling prices and failing developers, compounded by a weak economic backdrop that weighs on employment and income, Botham added.