(Bloomberg) -- Chinese property shares rallied after three of the country’s largest cities eased rules for homebuyers, following through on the central government’s latest efforts to prop up the embattled real estate sector.
A Bloomberg gauge of Chinese property stocks jumped as much as 14% on Monday morning after Shanghai, Shenzhen and Guangzhou relaxed homebuying curbs. The central bank on Sunday also said it will allow refinancing of mortgages.
The moves come days after the government’s announcement of its biggest package to end the prolonged property slump that’s been dragging on economic growth. Top leaders last week also pledged action to make the real estate market “stop declining,” their strongest vow yet to stabilize the sector after prices of new homes fell in August at the fastest pace since 2014.
The Politburo’s pledge is the most determined since the industry downtrend started more than three years ago, Morgan Stanley analysts led by Stephen Cheung wrote in a Sept. 29 note. “Regulators are aiming at stabilizing, rather than rejuvenating, the housing market, albeit the overall tone was more than the market expected.”
On Sunday, the trading hub of Guangzhou became the first tier-1 city to remove all restrictions, saying it will stop reviewing homebuyer eligibility and no longer limit the number of homes owned. Both Shanghai and Shenzhen said they will allow more people to purchase residences in suburban areas, as well as allow others to buy more homes.
Shanghai, China’s financial hub, and Shenzhen, the southern city known for its tech industry, also announced they were lowering minimum downpayment ratios for first and second homes to 15% and 20%, respectively, in a bid to boost demand.
The loosening in Shanghai and Shenzhen is slightly less than expected, while Guangzhou went further than anticipated, according to Jefferies Financial Group Inc. analysts including Shujin Chen. “We think the policies are unlikely to turn property prices around, but they could ease potential price declines,” Chen wrote in a note on Monday.
The central bank’s decision to refinance existing mortgages is expected to lower borrowing costs on as much as $5.3 trillion in mortgages for millions of families. The move, confirming earlier reports by Bloomberg News, underscores China’s urgency to stem a housing-led slowdown in Asia’s largest economy as it faces the prospect of increasing protectionism and a shaky global outlook.
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Homeowners will be able to renegotiate terms with their current lenders effective Nov. 1, the People’s Bank of China said Sunday. Those who chose fixed mortgage rates can also renegotiate new loans based on the latest loan prime rate, a reference rate for mortgage loans, according to the statement.
The measures will slash outstanding rates for individual borrowers by an average of 50 basis points, and reduce their annual interest expenses by about 150 billion yuan ($21 billion), PBOC Governor Pan Gongsheng said earlier in September. Banks usually reprice existing loans at the beginning of the year based on the five-year loan prime rate, which has been lowered by 35 basis points.
China will allow mortgage refinancing for both first and second homes, according to a separate statement by the nation’s interest rate self-disciplinary body overseen by the central bank. The inclusion of second-home buyers for mortgage refinancing marks an expansion from a similar drive a year earlier, which applied to first-home purchasers only.
Last year’s mortgage refinancing push reduced outstanding rates by an average of 73 basis points and lowered borrowers’ annual interest expenses by about 170 billion yuan, the PBOC said in a July report.
Major banks should announce detailed rules no later than Oct. 12 and complete the mortgage refinancing before Oct. 31. State-owned lenders including Industrial & Commercial Bank of China Ltd., Bank of China Ltd., Bank of Communications Co. and Agricultural Bank of China Ltd. all announced their rules immediately after the PBOC’s statement.
The government also extended one of its 2022 16-point rescue package measures to the end of 2026, allowing developers’ outstanding bank loans and trust borrowings due within the next six months to be extended for a year.
The PBOC will ramp up its re-lending program for state-owned firms to acquire unsold property inventories. It will now provide 100% of the principal of bank loans for such purchases, up from 60% announced in May.
Despite the basket of policies, analysts warn that the property market still faces headwinds. “It may take time and could still prove challenging to turn around residents’ bearish views with existing policies,” said Morgan Stanley’s Cheung.
(Updates with Chinese property shares, policy details, analyst comments.)
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