China News Service, Beijing, February 20th: Question: What impact will the largest LPR interest rate cut in the past five years have on China's property market?
China News Service reporter Pang Wuji
China's property market is experiencing major positive news. The loan prime rate (LPR) of more than 5 years, which is the reference for mortgage interest rates, has experienced the largest decline since the LPR reform in August 2019. The latest LPR announced on February 20 showed that the LPR over five years was 3.95%, a decrease of 25 basis points from the previous month. This was the largest decrease among previous LPR adjustments. As one of the most important factors affecting the real estate market, what impact will this unexpected reduction in mortgage interest rates have on China's real estate market?
First of all, the cost reduction effect of this LPR interest rate cut is obvious, which will directly reduce the repayment pressure of home buyers.
For those who want to buy a house with a loan, changes in the LPR for a term of more than 5 years are crucial, because currently most people’s mortgage interest rates (except fixed interest rates) are formed by adding points to the LPR for a term of more than 5 years.
Zhang Dawei, chief analyst of Centaline Real Estate, said that this time the LPR of more than 5 years has been reduced from 4.2% to 3.95%. If additional factors are not considered, taking a total loan of 1 million yuan (RMB, the same below) and 30-year equal principal and interest as an example, The monthly mortgage payment will be reduced by approximately 145 yuan, and the overall interest expense over 30 years will be reduced by more than 50,000 yuan.
Yan Yuejin, research director of E-House Research Institute, believes that China's real estate market is currently in the stage of stabilizing and recovering, but the recovery process needs to be consolidated. The interest rate cut is beneficial to the reduction of capital costs, which directly leads to the decline of mortgage interest rates. This interest rate cut is a relatively large reduction in burdens and will help promote mortgage applications and consumption.
Secondly, the record-breaking reduction sends a strong signal to stabilize the property market and prevent risks.
Chen Wenjing, market research director of China Index Research Institute, pointed out that after the LPR is lowered, the current lower interest rates for first-time and second-home mortgages will be reduced to 3.75% (LPR minus 20 basis points for more than 5 years) and 4.15% (LPR plus 20 for more than 5 years) respectively. basis points), further approaching historical lows. In some cities, mortgage interest rates have dropped to historical lows, with first-home mortgage interest rates higher than 4% in only a few areas.
Li Yujia, chief researcher of the Housing Policy Research Center of the Guangdong Provincial Institute of Urban Planning, believes that the LPR has been lowered by 25 basis points at one time, which is the largest reduction since the LPR reform in August 2019. The reason for the substantial reduction is that on the one hand, the fundamentals of the demand side of the current property market are still weak, and residents' expectations of leveraging to purchase houses are weak; on the other hand, the large-scale, one-time reduction in mortgage interest rates at the beginning of the year also releases dividends in place and avoids " The consideration of "squeezing out toothpaste" will have a direct impact on market expectations and encourage onlookers to accelerate their entry into the market.
Wen Bin, chief economist of China Minsheng Bank, also pointed out that the sharp decline in LPR over 5 years is conducive to better promoting investment and consumption, better cooperating with the release of the effects of recent policies to stabilize real estate, supporting the stable and healthy development of the real estate market, and easing the risk.
With the combination of policies, the "Little Indian Spring" of the property market is expected to gradually begin.
Since 2024, policies on both supply and demand sides of the real estate industry have continued to be implemented. On the demand side, Chen Wenjing pointed out that before the Spring Festival, first-tier cities successively relaxed purchase restriction policies, which is a clear signal. In the future, more cities will optimize and adjust relevant policies in a timely manner based on their own conditions. On the supply side, since January, the establishment of an urban real estate financing coordination mechanism has been accelerated, with various localities actively reporting "white lists" of financing support projects, and banks and financial institutions also actively connecting to stabilize the expectations of real estate companies and individual home buyers.
In addition, since the beginning of this year, the construction of "three major projects" (the construction of affordable housing, the renovation of urban villages, and the construction of "both leisure and emergency" public infrastructure) has also continued to advance. Beijing, Shanghai, Guangzhou, Shenzhen, Fuzhou, etc. Local governments have successively announced the construction scale of allotment-type affordable housing in 2024 or the first batch. Hefei, Guangzhou, Nanning and other places announced the first round of urban village renovation plans, and Guangzhou issued the second batch of room tickets.
Under the policy combination, Chen Wenjing said that the effect of regulatory policies in core cities is expected to be strengthened, and the "Little Indian Spring" market in the property market may gradually begin.
Zhang Dawei also believes that the real estate market in some cities, especially first- and second-tier cities, has gradually bottomed out, and rapid stabilization of the market will be a trend. It is expected that the "Little Indian Spring" will reappear in a certain range of markets in early 2024. (over)