Li Wen, a human resources director at a state-owned enterprise in Nanchang, Jiangxi province, paid off a formidable 200,000 yuan (US$28,170) on her home loan ahead of schedule in January, soon after she received her annual bonus at work.
The 36-year-old had been repaying her loans, totalling 600,000 yuan, prematurely for the past few years, even after the speed of interest was reduced to 4.3 per cent from the unique 5.39 per cent following just just a few rounds of rate cuts since last 12 months.
“Depositing the money in banks doesn’t do anything for me,” Li said. “Deposit rates are far lower, and we wouldn’t have any ideal high-yield investment options.”
Do you should have questions on crucial topics and trends from across the globe? Get the answers with SCMP Knowledge, our latest platform of curated content with explainers, FAQs, analyses and infographics delivered to you by our award-winning team.
“I’d quite pay my loans earlier to avoid wasting plenty of the interest cost, especially when salary and job cuts are getting common.”
Li’s concerns are shared by many householders in China, who had bought homes in a red-hot market in high hopes of appreciation, before prices began to slip.
A construction site in Beijing. Photo: Agence France-Presse alt=A construction site in Beijing. Photo: Agence France-Presse>
The Chinese property market, once a serious pillar of the national economy, has been inside the doldrums since August 2020, when the federal government put in place a policy dubbed “the three red lines”, aimed toward curbing a borrowing binge by property developers.
Since then, some homeowners, affected by heavy loan burdens and an uncertain economic outlook, sold their homes. Others, like Li, saved up and took advantage of rate of interest cuts to pay down mortgages or home loans.
This 12 months, the People’s Bank of China has twice lowered the five-year loan prime rate, which industrial banks use as a benchmark to control their mortgage rates, by an entire of 35 basis points to 3.85 per cent. The central bank has also lifted the lower cap for mortgages on latest and second-hand homes nationwide.
That led dozens of Chinese cities to cut their mortgage rates to 3.2 per cent, and just a few others to below 3 per cent. The standard rate for newly issued mortgages was 3.45 per cent in June, down from 4.27 per cent last September, in accordance with government data.
Homeowners seized the prospect.
In every month last 12 months, a median of 450 billion yuan value of mortgages was paid off prematurely, in accordance with data compiled by Australia and Latest Zealand Banking Group (ANZ). That number rose to 600 billion yuan in the first seven months of this 12 months, just like 15 per cent of China’s retail sales or 12 per cent of the population’s disposable income throughout the period.
Residential buildings in Beijing. Photo: Bloomberg alt=Residential buildings in Beijing. Photo: Bloomberg>
Outstanding mortgages in China dropped to 37.79 trillion yuan as of the highest of June, the underside level in almost three years, official data showed.
Amid calls to in the reduction of the speed gap between existing and latest mortgages, China could slash rates on outstanding mortgages by as much as 50 basis points as early as this month, working as much as an entire reduction of 80 basis points by next 12 months, in accordance with a recent report from Bloomberg, citing unnamed sources.
The possible relief measures lifted the hopes of some homeowners. “Once that’s implemented, I’ll sit back my budget and withdraw my application for early mortgage payments,” wrote one user on Xiaohongshu, an Instagram-like Chinese social media platform also known as Red.
“An additional reduction on the outstanding mortgage rate will decrease costs for existing homeowners and spur consumption and investment,” said Chen Wenjing, director of market research at China Index Academy. “It’ll also ease the wait-and-see sentiment dragged on by expectations of further rate cuts, and shore up consumption, including home purchases.”
But while such measures may bring a short-term rebound in consumption, in the long run it’d do little to boost the property market, in accordance with some analysts.
“If this mortgage rate cut materialised, we imagine the potential impact may very well be quite limited in spurring demand in China’s property market,” said Ricky Tsang, a director at S&P Global Rankings.
“The loan burdens of existing homeowners may be lessened with a rate cut, [but] demand for property stays to be constrained by the weakening economy and decline in home prices,” he said.
A constructing project under construction in Beijing. Photo: EPA-EFE alt=A constructing project under construction in Beijing. Photo: EPA-EFE>
While a reduction of 80 basis points is “generally in line” with expectation, said Xing Zhaopeng, a senior China strategist at ANZ, “the effect may be limited”.
“It’d help decrease early mortgage payments, however it surely isn’t enough to bring the property market back to normal,” he said, citing the low rental yields across the country – about 3 per cent in major second and third-tier cities, and around 2 per cent in first-tier cities – as one among crucial hurdles for home purchase.
Buyers also remain cautious about plunging home prices.
Prices of recent homes in China declined by essentially probably the most in nine years last month, sinking 5.7 per cent from a 12 months ago, in accordance with official data released on Saturday. Meanwhile, contracted sales generated by the best 100 Chinese developers plunged 10 per cent in August from a month earlier, and 27 per cent from a 12 months earlier, in accordance with China Real Estate Information Corporation.
“If there isn’t any major stimulus to reverse the expectation on home prices and lift rental yields to a level higher than mortgage rates, China’s properties may remain uninvestable,” said ANZ’s Xing.
This text originally appeared inside the South China Morning Post (SCMP), essentially probably the most authoritative voice reporting on China and Asia for greater than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.