China to let local governments buy homes, cut mortgage rates to revive property sector

(Reuters) -China will allow local government authorities to buy some homes at "reasonable" prices to provide affordable housing, Vice Premier He Lifeng told an online meeting on housing policy on Friday, the official news agency, Xinhua, said.

China will cut interest rates of mortgage loans and down-payment ratios for homebuyers to boost lacklustre property demand, according to three statements released by its central bank on Friday.

MARKET REACTION:

China's CSI300 benchmark real estate index jumped more than 4% on the news.

COMMENTS:

WANG BO, CHIEF OF SHANGHAI-BASED JURUN CAPITAL

"Adjusting down payments and mortgage rates are essentially restoring some of the financial attributes... Guaranteed home delivery is to restore the market's confidence towards purchasing homes.

"All policies are based on the logic of restoring confidence and asset prices."

ROCKY FAN, ECONOMIST, GUOLIAN SECURITIES

"The policies seem to be designed to prevent further fallout of the property crisis, but it takes time to reverse the downward trend of the sector."

RAYMOND YEUNG, CHIEF ECONOMIST, GREATER CHINA, ANZ

"The biggest problem is whether the government purchase programme will induce private sector demand. Clearing inventory will increase cashflow to developers and help their financial stability, but it does not address the private sector confidence, unless the government redefines the role of property investment."

DANIEL TAN, PORTFOLIO MANAGER, GRASSHOPPER ASSET MANAGEMENT, SINGAPORE

"While the moves are the strongest policies announced by China to shore up the beleaguered property market, we think they have been largely priced in since Thursday, after Hong Kong returned from holidays on Wednesday. We would need to see the PBOC do more in coming months, if the property sector's bonds and equities are to see a sustained recovery in prices.

"It is also unclear how these measures would revive consumers' buying confidence and how effective the implementation of these policies would be."

YAN YUEJIN, ANALYST, E-HOUSE CHINA RESEARCH AND DEVELOPMENT INSTITUTION, SHANGHAI

"China adjusting first-home purchase ratio to 15% can even be understood as the most lenient policy in history. Naturally, it shows that the national level attaches great importance to the housing de-inventory and supports reasonable housing consumption demand. The move is of great significance for the pull in mortgage lending, for the rapid release and scale of new and improved housing."

LYNN SONG, CHIEF ECONOMIST FOR GREATER CHINA, ING, HONG KONG

"We've seen increased urgency from policymakers to stabilise the housing market, which is welcome news after we saw April's housing prices with the steepest month-on-month decline of the current cycle.

"While it is arguably one of the most important signs of a stabilisation of sentiment in China, it is worth noting that a potential bottoming out of housing prices would only be the first step; elevated housing inventories will likely keep real estate investment suppressed for some time yet, and the property sector will remain a major drag on the economy this year."

BRUCE PANG, CHIEF ECONOMIST CHINA, JONES LANG LASALLE, HONG KONG

"Moves such as the central bank's mortgage rate cuts and reduced down payment ratios suggest Beijing is starting from the demand side and using monetary policy in the hope of scoring a decisive victory in a technical knockout.

"But combined with recent macro data, the property market's rebound looks more like a long game that will require the cooperation of residents' incomes, business confidence, market sentiment, and economic growth expectation."

SENIOR EXECUTIVE OF DEFAULTED SHANGHAI-BASED DEVELOPER

"The policies on clearing inventory are considered quite powerful compared to all previous ones. Psychologically, it'd let investors think the government is 'paying the bill', and it is shifting the risks from property to banks and local governments."

RAYMOND CHENG, HK HEAD OF CHINA RESEARCH, CGS INTERNATIONAL SECURITIES

"The latest two measures should further help improve market sentiment and boost developers' share prices. The 15% down payment for first-time home buyers is the lowest since 2008 during the Asia financial crisis. Meanwhile, the removal of floor mortgage rate means that lower mortgage rates are expected given plenty of liquidity in the banking system.

"These measures, coupled with a series of other supportive policies on the property market and potential talk of government buying units from developers, suggest the central government’s seriousness and determination to address property market issues in China."

LARRY HU, CHIEF CHINA ECONOMIST, MACQUARIE

"Overall, it's a positive and encouraging direction, that the governments are stepping in to buy housing inventory.

"But in order to evaluate how powerful the impact will be, the key questions are who will be funding the purchase and how much they'll fund in the end. Because funding from local governments would be much more limited than the central government's. Impact of lowering mortgage rates would be limited because there's still a lack of demand and that's why we need government to be the buyer as a last resort."

BACKGROUND:

* China's various policy measures since 2022 have failed to turn around the property sector, which accounted for a fifth of economic activity at its peak and remains a drag on growth.

* Over the past few years, a growing list of developers has defaulted on debt repayment obligations and a handful of them, including China Evergrande Group, have been ordered to be liquidated.

* Banks have been reluctant to heed Beijing's repeated nudges to bolster credit to the embattled sector given the risks of more bad loans.

* China's central and local governments are pushing ahead with policies intended to clear the stock of unsold housing.

* Large cities, such as Beijing and Shenzhen, have eased home purchase restrictions, and some are allowing homebuyers to swap to a new home from an old one.

(Reporting by Reuters Asia bureau; compiled and edited by Subhranshu Sahu)