Mortgage Discounts Expected as China Home Sales Continue Slide

A survey this month of economists and analysts tracking China’s real estate sector found that nearly three-quarters of the market experts expect a return of preferential mortgage rates for first-time buyers in the coming months. The shift in credit policy is seen as the latest attempt by the government to stoke demand from consumers and prevent a hard landing in the country’s housing market.

The poll of 29 researchers by Bloomberg revealed that 74 percent of the respondents expected preferential mortgage offerings to return, and 59 percent anticipate that the central bank will ease its mortgage restrictions during the second half of this year.

Keeping with the theme of providing more credit to consumers for home purchases, 56 percent of the experts predict that banks will lower minimum down payment requirements.

Expectations Coincide with Housing Slowdown

The survey, which was conducted earlier this month, was completed before China’s National Bureau of Statistics released figures on July 18th showing that home prices declined in June in 55 out of China’s 70 largest cities. The downturn has been driven by a decline in home sales which has produced a glut of unsold homes.

Already many communities, such as Jinan and Hohhot, have begun relaxing home purchase restrictions to rekindle demand, however, the unavailability of mortgage financing continues to keep at least some buyers out of the market.

Mortgage Discounts Cancelled Last Year

Most of China’s banks ended preferential mortgage rates late last year under direction from the central government. The credit clampdown was put in place after several months of surging home prices raised concerns in Beijing over a housing bubble.

By February of this year commercial banks in China were charging customers across the board at least the full benchmark mortgage rates, with some lenders, such as the Bank of East Asia, lending to potential homeowners at a 20 percent premium over the benchmark rates.

Mortgages Part of Mini-Stimulus

The emphasis on mortgage financing appears to be part of what some analysts are terming a “mini-stimulus” as the government looks for ways to prop up the housing market without stoking inflation.

Before the reversal of policy last year, China Construction Bank, which is the country’s largest mortgage lender had been offering discounts of 15 percent off of the benchmark mortgage rates for first time borrowers.

With many buyers now standing on the sidelines waiting for already sliding house prices to fall further, it remains to be seen if the promise of more available and cheaper credit will be sufficient to lure them back into the housing market.