China is said to be considering allowing homeowners to refinance as much as US$5.4 trillion of mortgages to lower borrowing costs for millions of families and boost consumption.
Under the plan, homeowners would be able to renegotiate terms with their lenders before January, when banks typically reprice mortgages, people familiar with the matter said, who asked not to be identified.
They would also be allowed to refinance with a different bank for the first time since the global financial crisis, the people said.
Photo: Bloomberg
Authorities are pushing to reduce mortgage costs after the central bank encouraged such support last year and banks responded with a rare rate cut on outstanding mortgages of first homes. It was not immediately clear if the latest considerations apply to all homes.
While lower mortgage rates would hurt profitability at state-run Chinese banks, authorities are facing renewed pressure to stem a housing-led slowdown in its economy.
“If implemented, the move would send a signal that the central government is intensifying measures to support [the] overall economy, protect household wealth and spur consumption,” said Raymond Cheng (鄭懷武), head of Hong Kong and China property at CGS-CIMB Securities International Pte Ltd (銀河-聯昌證券). “It would also indirectly help the real-estate sector.”
A Bloomberg index of Chinese developers rose more than 8 percent in afternoon trading yesterday, with Shimao Group Holdings Ltd (世茂集團) surging as much as 28 percent and China Vanke Co (萬科) jumping up to 17 percent in Hong Kong.
The offshore yuan also hit the strongest in more than a year, amid optimism that further property stimulus would ease market concerns about the housing downturn and China’s growth prospects.
Concerns about a deteriorating outlook intensified this week after a string of disappointing earnings reports from consumer companies and a cut to China’s growth forecast by UBS Group AG economists. The downgrade reflects a consensus among global banks that the country might miss its growth target this year. The nation last fell short in 2022, amid COVID-19 lockdowns and abrupt policy changes.
The new plan targets existing homeowners, who have been left out as new homebuyers have enjoyed sizeable cuts to key interest rates this year.
If approved, it might serve to ease mortgage burdens faster than expected. While China has pushed average mortgage costs to a record low this year, most households have not benefited since banks would not reprice existing loans until next year.
The refinancing move could cut rates on existing mortgages by a maximum 1 percentage point, saving homeowners about 300 billion yuan (US$42.3 billion), Jefferies Financial Group China economist Shujin Chen (陳姝瑾) said.
“The move is going in the right direction if homeowners are allowed to switch banks for lower rates in the long run, it is more market oriented and better than a one-off reduction,” Chen said. “It might boost consumption a little, but would not have [a] material impact on the property sector” as home buyers already enjoy cheap rates.
Banks’ net interest margin could be squeezed by about 10 basis points, which is still “manageable” as banks have various ways, including trimming deposit rates, to cushion the impact, Chen said.
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