The country’s central bank is trying to stem an ongoing property crisis.
China is currently in the midst of a property crisis due to a combination of mortgage boycotts and frozen bank accounts. China is still experiencing general economic hardship due in no small part to new COVID lockdowns from its “zero COVID” policy, and the housing industry is one of the biggest-hit sectors.
In order to entice citizens to buy homes again, China’s Central Bank announced that they would be lowering their five-year prime loan rate from 4.45% to 4.3%, as well as their one-year prime loan rate 3.7% to 3.65%.
“It’s all about property,” Larry Hu, chief China economist for Macquarie, wrote in a report. “Today’s cut is much needed, as the property sector is currently the biggest drag to the economy.”
Due to a quirk in the real estate business in China, real estate firms can sell homes to people before they are actually completed. This means that numerous Chinese “homeowners” have been made to pay rising mortgage fees on homes that they can’t actually live in, which has prompted the ongoing mortgage boycotts. This has led to less-than-optimistic sales forecasts for prominent real estate companies.
Mo Bin, president of real estate company Country Garden, said in a report that “the tough business environment in the real estate industry,” exasperated existing financial problems caused originally by the COVID-19 pandemic and its associated lockdowns.
China has slashed its mortgage lending rate for the second time this year as the country’s central bank seeks to limit the fallout from a liquidity crisis in the property sector https://t.co/Qjoap1g2vJ
— Financial Times (@FinancialTimes) August 22, 2022
Analysts believe that these mortgage cuts will help in the long run, but not until they actually go into effect. “Homebuyers with existing mortgages will have to wait until the start of next year for the [latest] change to affect them,” reports Sheana Yue, China economist at Capital Economics.
“What’s more, the current weakness in loan demand is partly structural, reflecting a loss of confidence in the housing market and the uncertainty caused by recurrent disruptions from China’s zero Covid strategy,” she added. “These are drags that can’t be easily solved by monetary policy.”