context: Since July last year, real estate sales have experienced negative year-on-year growth for 10 consecutive months. Earlier in May, PBoC reduced mortgage rate floors and this move to drive mortgages down further is a sign that the real estate market is worrying Beijing. Concerns over the impacts of the market downturn on the closely tied land-finance system are also likely at play.
PBoC (People’s Bank of China) issued 20 May 2022 LPR (loan prime rate), specifying
- 1-year LPR: 3.7 percent, no change
- 5-year LPR: 4.45 percent, down 0.15 percentage points
The 5-year LPR is the benchmark for mortgage rates, so the cut is expected to stimulate demand. The cut continues the tone the Politburo set in April on supporting housing demand, notes Ma Hong 马泓 Zhixin Investment Research Institute senior researcher. Support is also spreading from third- and fourth-tier cities as banks in both Beijing and Shanghai lowered interest rates, reports Cailian. Ma predicts the weighted average interest rate of personal housing loans will fall from the current 5.49 percent to 5.0-5.25 percent by year’s end. Wang Qing 王青 Oriental Jincheng Securities chief macro analyst agrees that rates will continue to fall and predicts another interest rate cut in June or early H2.
In addition, the 5-year LPR is also used for medium and long-term business loans, which are in short supply. Ma argues that lowering the costs for long-term loans for firms will help them better prepare for post-COVID development.