China Cuts Housing Loan Rates to 30-Year Low to Boost Market

China’s central bank on Wednesday trimmed the interest rate on loans from an individual’s housing provident fund to the lowest level in about 30 years in a fresh bid to stabilize the real estate market as the country’s leadership launched a broader package of economic stimulus measures.

Speaking at a press conference last week People’s Bank of China governor Pan Gongsheng announced that the government would cut the borrowing rate for loans from the individual housing provident fund, a compulsory savings plan for employers and employees which can only be used for housing expenditures, by 0.25 percentage point, Pan Gongsheng, governor of the People’s Bank of China, said at a press conference.

The rate for first-home loans with maturities of over five years has been lowered to 2.6 percent from 2.85 percent, and the rate for loans of other terms has also been adjusted. The new rules, which went into effect on Thursday, mark the lowest such borrowing rates in nearly 30 years, according to public data.

“This [policy adjustment] is expected to save residents over RMB 20 billion ($2.77 billion) on interest expenses of the housing provident fund loans annually, which is conducive to supporting the rigid housing demand of families and help stabilize the real estate market and cease its decline,” Pan said.

Rate Cuts to Boost Demand

The PBOC rolled out the mortgage rate cut amid a barrage of policy steps announced Wednesday including cutting the seven-day reverse repo rate by 0.1 percentage point to 1.4 percent, which bought the benchmark loan prime rate (LPR) down by the same extent. That change also went into effect on Thursday.

“We view the lowering of housing provident fund loan rates as positive for lifting the home demand, as the loan usually accounts for a material portion of total homebuying proceeds for households. Besides, we think the upcoming 10 basis-point cut in 5-year loan prime rate should also reduce overall borrowing costs for homebuyers,” said Morningstar equity analyst Jeff Zhang.

The lower rates are expected to translate into more attractive deals for homebuyers.

“Corresponding to the LPR rate cut, the commercial housing loan interest rates for both first and second homes will decrease by 0.1 percentage point, which will help homebuyers save on interest expenses and ease their repayment burdens,” said Yang Kewei, deputy general manager of Chinese real estate research firm CRIC.

Buyers have responded, with Greentown China Holdings selling out all 120 homes in a luxury development in Shanghai’s Xuhui district over the weekend at an average price of around RMB 195,000 per square metre.

“We think the latest cuts to key lending rates are part of an easing cycle that will stretch well into 2026,” said S&P Global Ratings credit analyst Ming Tan, who forecasts 50 basis points of interest rate cuts this year and a further 30 basis points in 2026.

Unleashing Liquidity

In addition to the mortgage rate move, the PBOC lowered bank reserve requirement ratios (RRR) by 0.5 percentage point, with effect from 15 May, which is projected to inject around RMB 1 trillion of long-term liquidity into the financial system.

“The average level of RRR will come down to 6.2 percent, from 6.6 percent. This will help reduce the costs of debt for banks and significantly enhance their lending capacity to homebuyers and developers,” said Yang.

In a bid to help eligible developers struggling to deliver pre-sold homes on time to gain access to loans, China introduced a financing “white list” scheme for real estate projects earlier last year.

Some RMB 6.7 trillion of loans under the scheme have been granted to developers to support the construction and delivery of more than 16 million homes, Li Yunze, director of the National Administration of Financial Regulation, said at the Wednesday press conference.

“As a next step, we will speed up the formation of financing mechanisms that better align with the evolving property development model, including refining the rules for loans tied to property development, personal housing and urban renewal projects”, said Li.

Easing Ahead of Trade Talks

The market support measures were announced as Beijing prepared to enter trade talks with the Trump administration in the wake of the US President’s tariffs of up to 145 percent on Chinese goods.

“Policymakers are likely now privy to some of the early data on how the economy is being impacted by the tariff shock,” said Lynn Song, chief economist for Greater China at European Bank ING. Song flagged that, despite the policy easing measures, “it will be challenging to restore consumer confidence, which is closer to historic lows than historic averages”.

Citing deflationary pressures and moderating growth, Song expects another 20 basis points of interest rate cuts and an additional 50-basis-point reduction in the RRR this year, while noting “the next move may not come until after the Fed resumes rate cuts.”

After a prolonged slump, China’s property market is showing signs of stabilization with prices for new homes falling at a slower pace in March, declining by 0.08 percent month on month compared with a 0.14 percent slide in February, according to government statistics released last month.

Property sales continued to fall in April, however, with the sales of China’s 100 largest developers declining 16.9 percent from a year earlier, widening from a 10.6 percent year-on-year drop in March, according to data from research firm China Index Academy.