Credit: Visual China
BEIJING, August 2 (TiPost) - The People’s Bank of China and the State Administration of Foreign Exchange have decided that targeted and differentiated housing credit policies should be precisely implemented according to the situation in each city.
The decision was made during a work conference for the second half of 2023 on Tuesday.
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During the conference, the need to continue guiding individual housing loan interest rates and down payments downward to better meet residents’ rigid and improvement-oriented housing needs was emphasized. Commercial banks should lawfully and orderly adjust the interest rates on existing individual housing loans.
The market reacted quickly to the decision made at the conference. On Wednesday morning, among the 31 primary industries that Shenwan Hongyuan Securities Co., Ltd. covers, the real estate sector saw the highest increase, which was 1.12%, while the banking sector experienced the largest decline, which was 1.90%.
Regarding the real estate market, the implementation period of the “Baojiao Lou” (which means ensuring the completion of the construction of unfinished residential buildings) loan support plan should be extended and financial support for housing leasing, urban village renovation, and affordable housing construction should be strengthened.
In November 2022, to mitigate real estate risks, China’s central bank and the former China Banking and Insurance Regulatory Commission issued a notice that allowed debt extension for property developers and increased support for their financing. For this purpose, they launched a special 350-billion-yuan loan program, a 200-billion-yuan loan support plan, and a 100-billion-yuan rental housing loan support plan.
However, some industry insiders pointed out that the effects of this notice have been below expectations. The main reason is the significant financing gap for “Baojiao Lou” projects, as some property developers faced financial difficulties, and their asset-liability structures are complex, leading financial institutions to be cautious and reluctant to provide financing.
In the second half of the year, the central bank is emphasizing again the effective implementation of these policies, hoping to encourage commercial banks to increase support for property developers’ financing.
From the perspective of market performance, the central bank’s work deployment for the second half of the year has to some extent affected the flow of funds in the closely related real estate and banking sectors.
Housing loans are weighted assets on the bank’s balance sheet, accounting for about 20% to 30% of total loans in state-owned and some joint-stock banks. Lowering the interest rates on existing housing loans will undoubtedly further reduce the bank’s loan yield, affecting net interest margin and revenue.
On Wednesday morning, CITIC Securities Co., Ltd. warned in its research report that the banking sector might experience short-term volatility after a recent rebound.
The agency stated that adjustments to existing mortgage rates and the financial assistance in debt-to-equity conversions will exert negative pressure on banks’ interest margins, which will be reflected in their financial reports starting from the fourth quarter of this year.
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