Several Chinese cities slash down payments, mortgage rates to boost property demand

BEIJING (Reuters) - Several cities across China have lowered down payment and mortgage loan interest rates, in response to the latest wave of stimulus measures to boost lackluster property demand, state media reported.

The down payment for first-time homebuyers in Hefei city and Wuhan city have been lowered from 20% to 15% - the lowest ratio allowed that the central bank announced last week, Shanghai Securities News reported on Wednesday.

The ratio for second-time homebuyers was cut from 30% to 25%, the report said.

Additionally, some banks in Wuhan have cut mortgage loan interest rates for first-time homebuyers by 30 basis points (bps) to 3.25%, after China abolished the floor level of the interest rates last week. Some lenders in Changsha city cut the rate by 10 bps to 3.65%, local media said.

Lenders in cities across the nation, including Beijing, Shanghai and Shenzhen, have announced lowering interest rates of housing provident funds by 25 bps.

China announced "historic" steps on Friday to stabilise its crisis-hit property sector, including further lowering mortgage interest rates and down payment requirements.

Since the property market began its steep downturn in 2021, a string of developers have defaulted, leaving scores of idle construction sites, and sapping confidence in what had for decades been the preferred savings instrument for the Chinese population.

The measures are encouraging for homebuyers and investors, Jeff Zhang, an equity analyst at Morningstar, said in a research note.

Still, "we caution that potential buyers may remain on the sidelines amid falling home prices, and policy tailwinds will likely require a longer time to translate into a pickup in home sales," said Zhang.

The central bank also announced it would set up a relending facility for affordable housing that it says would result in 500 billion yuan ($69.06 billion) worth of bank financing.

But the funds will help Chinese developers on a very selective basis, said S&P Global Ratings credit analyst Ricky Tsang.

"Only completed projects may be acquired--this means distressed developers, whose projects are most likely uncompleted, cannot benefit," said Tsang.

($1 = 7.2396 Chinese yuan renminbi)

(Reporting by Ziyi Tang and Ryan Woo; Editing by Chizu Nomiyama)