After months of trying to cool down the housing market, China’s government has begun to take steps to revive flagging home sales that have begun to threaten overall economic growth.
On Monday the People’s Bank of China instructed the nation’s banks, most of which can be seen as directly reporting the central authority, to prioritise the granting of mortgages, particularly to first time buyers.
In a statement to 15 banks the government agency recommended in a statement published on its website that they “improve efficiency of service, give timely approval and distribution of mortgages to qualified buyers.” The instructions included giving priority to first-time home buyers.
The move to spur lending is a significant reversal of months of government policy and reflects growing concern that the nation’s inflated real estate market may be collapsing.
Reacting to a Market Slowdown
Earlier this month a report by CRIC, the information unit of E-House, tracked average home prices in 288 cities and found a decline of 0.02 percent in April compared to March. The study showed that prices were still up 6.9 percent compared to the same period in 2013, although the rate of annual increase in prices continued to slacken, after rising 8.1 percent in March.
A competing survey by Soufun’s China Index Academy which surveyed China’s 100 largest cities, found that average prices rose 0.1 percent in April compared to March, although this pace of increase also showed a decline from the 0.4 percent rate reported in March.
The downturn in price growth and transactions volumes represent a major shift from the rapid growth rates experienced in 2013.
Restoring Mortgage Discounts
The government move to rekindle lending represents a significant shift from policy’s in place just a few months ago.
A study concluded in late February found that nearly 90 percent of China’s banks had ended mortgage discounts for first time home buyers, following years of incentivising new home ownership.
The end of preferential rates was revealed in a recent survey of 69 bank branches across 22 cities by online real estate information provider, CRIC, a division of property agency E-House China.
Despite the moves by the central bank, many analysts continue to predict tough times for the property sector at least through the end of this year.