China’s once-booming housing market is facing headwinds, prompting the government to consider a strategic intervention. Financial regulators are mulling a potential reduction in mortgage rates for existing loans, aiming to inject some much-needed relief into the sector.
The proposed plan involves a two-phased decrease in mortgage rates, totaling 80 basis points. The first cut could happen within the coming weeks, followed by a second at the start of 2025. This staged approach allows for careful monitoring of the impact before further action.
Lowering borrowing costs holds the potential to benefit both homeowners and the banking sector. A reduction of 1 percentage point on existing mortgages could translate into massive savings for homeowners, with estimates suggesting a total benefit of around 300 billion yuan (US$42.3 billion). This relief would be particularly welcome for those grappling with the burden of high borrowing costs.
Furthermore, a more vibrant housing market could bolster the profitability of banks, many of which are facing declining investment returns on property loans. However, striking the right balance is crucial. Excessive rate cuts could trigger speculative buying and inflate a housing bubble, leading to future instability.
By adopting this measured strategy, China hopes to stimulate the housing market without jeopardizing financial stability. The success of this intervention will depend on how effectively it addresses the current challenges while ensuring long-term sustainability in the sector.
