Middle Finger Research Institute: Central Bank's multiple favorable policies implemented, what impact will it have on the real estate market?

The report released by the Central Research Institute stated that on September 24th, the State Council Information Office held a press conference. Overall, the central bank's release of multiple heavy positive measures will have a positive impact on the macro economy and the real estate market. The reduction of reserve ratio and interest rates will boost the economy by releasing liquidity and reducing the cost of funds. The improvement of the economic outlook is expected to repair residents' income expectations. Additionally, lowering the existing home loan interest rates will further stabilize homebuyers' expectations, repair market sentiment, and lower the 7-day reverse repurchase rate will further guide the downward trend of the 5-year LPR after October, reducing the cost of homeownership. Lowering the minimum down payment for the second home will significantly reduce the threshold for residents to buy homes. With multiple measures in place, it is expected to stabilize housing prices and accelerate the stabilization of the real estate market. Additionally, the report mentioned that the central bank also expanded the proportion of central bank funds supporting the refinancing of affordable housing, which will help increase the scale of commercial bank loans and have a positive impact on local property storage. However, it is worth noting that the progress of local property storage is slow, and issues such as the difficulty of price matching, high costs of local state-owned enterprise property storage funds, and supply-demand imbalance are key influencing factors. The current reduction in interest rates by the central bank can lower the costs of state-owned enterprise property storage to some extent, but factors such as pricing, supply-demand imbalance may still require more supportive policies in the short term to help accelerate the property storage process. In addition, policies to increase the stock of active land, extend the "16 financial regulations," and the term of operating property loans will further increase support for business funds and play an important role in stabilizing business expectations and boosting market confidence. On September 24th, the State Council Information Office held a press conference to introduce the relevant information on financial support for high-quality economic development. People's Bank of China Governor Pan Gongsheng, China Banking and Insurance Regulatory Commission (CBIRC) Director Li Yunze, and China Securities Regulatory Commission (CSRC) Chairman Wu Qing attended the event and responded to questions from reporters. Governor Pan Gongsheng announced multiple heavy measures such as lowering reserve requirements, interest rates, and adjusting the existing home loan interest rates. Meanwhile, Director Li Yunze also introduced the progress of the "white list" work. Governor Pan Gongsheng announced: First, to lower the reserve requirement and policy rates. Recently, the reserve requirement ratio will be reduced by 0.5 percentage points to provide long-term liquidity of about 1 trillion yuan to the financial market. By the end of this year, depending on the market liquidity situation, there may be a further reduction of 0.25-0.5 percentage points in the reserve requirement ratio. Lowering the central bank's policy rate, the 7-day reverse repurchase operation rate was lowered by 0.2 percentage points from the current 1.7% to 1.5%. It will guide the loan market quoted interest rate and deposit rate to decrease synchronously, maintaining the stability of commercial banks' net interest margin. Second, to lower the existing home loan interest rate and unify the minimum down payment ratio for home loans. Commercial banks are encouraged to lower the existing home loan interest rate to be in line with the new loan interest rate, with an average expected reduction of about 0.5 percentage points. The minimum down payment ratio for first-home and second-home loans will be unified, reducing the minimum down payment ratio for second-home loans nationwide from the current 25% to 15%. The support ratio of the 300 billion yuan affordable housing refinancing program created by the People's Bank of China was increased from 60% to 100%, enhancing the market incentives for banks and acquiring entities. The term of the operating property loans and "16 financial regulations" policies expiring at the end of the year will be extended to the end of 2026. Director Li Yunze stated: With the joint efforts of all parties, the urban real estate financing coordination mechanism has achieved good results. So far, commercial banks have approved over 5700 white-listed projects, with approved financing amount reaching 1.43 trillion yuan, supporting more than 4 million houses to be delivered on schedule. Under the drive of the coordination mechanism, financial institutions are also expanding their support to the real estate industry. By the end of August, real estate development loans this year have achieved positive growth compared to the beginning of the year, reversing the continuous decline in recent years. Mergers and acquisitions loans and housing leasing loans have grown by 14% and 18%, respectively, providing strong financial support for the stable and healthy development of the real estate market. At the same time, to support both rigid and discretionary housing demand actively, we will work with the People's Bank of China to guide various regions and financial institutions to adjust relevant real estate financing policies according to local conditions. Next, we will actively assist the People's Bank of China in further reducing the interest rates of existing home loans to further reduce residents' housing expenses and enhance the sense of acquisition of the people. 1. Reserve reduction and interest rate cut boost market confidence, promote stable economic operation In February, the central bank lowered the reserve requirement ratio by 0.5 percentage points, providing long-term liquidity of about 1 trillion yuan to the market. The weighted average reserve requirement ratio of financial institutions is 7%. This time, the reserve requirement is expected to be reduced by another 0.5 percentage points, providing long-term liquidity of about 1 trillion yuan to the financial market. After the implementation of the reserve reduction policy, the average reserve requirement ratio of banks is about 6.6%, still with some room for further adjustment. Figure: Average reserve requirement ratio of financial institutions since 2019 Data source: People's Bank of China, CREIS Pan Gongsheng also stated, "There are still three months before the end of the year, and depending on the situation, we may further reduce by 0.25-0.5 percentage points." This means that after this round of reserve reduction, there is still a certain expectation for reserve reduction in the fourth quarter. At the same time, interest rate cuts were also announced during this meeting. In July, the central bank lowered the 7-day reverse repurchase operation rate from 1.8% to 1.7%, and this time it was further lowered by 20 basis points to 1.5%. Under a market-rate control mechanism, the adjustment of policy rates will drive adjustments in various benchmark interest rates in the market. It is expected that the LPR and deposit rates in October will also decrease by 0.2-0.25 percentage points. With the combination of reserve reduction and interest rate cuts policies, releasing more liquidity and lowering financing costs, it is expected to boost market confidence and promote stable economic operation. 2. Guiding the downward trend of new and existing home loan interest rates, reducing home purchase costs, repairing market expectations Figure: Trends of 1-year and 5-year LPRs Data source: People's Bank of China, CREIS Since 2024, the People's Bank of China has lowered the 5-year LPR twice by a total of 35 basis points to 3.85%, and at the same time, has eliminated the national.. . . . . . . . .R. . . . . . . . . . . .. .. . . . . From dnjg.on528n568. wjg.com In addition, , , ,,,.... (translated by TranslateMe)The minimum interest rates for first and second home mortgages at various levels have been cancelled across the country, except for Beijing, Shanghai, and Shenzhen where the minimum interest rates have not been removed. The interest rates for newly issued first home mortgages in many cities have dropped to around 3.2%, with some cities offering rates below 3%.From the perspective of housing prices, the average rent-to-sale ratio in the current focus cities is 2.1%, while in terms of capital costs, the yield of 10-year government bonds is about 2%, the interest rate for new individual housing loans issued in July is 3.4%, and the interest rate for first-time homebuyers for over 5 years of public accumulation fund loans is 2.85%. Taking into consideration an average 30% down payment (although the minimum down payment ratio has been reduced to 15%, the willingness of residents to leverage may not be strong), the current comprehensive capital cost for residents to purchase a house is approximately between 2.6% to 3%. Lowering interest rates is helpful in reducing the cost of purchasing a house for residents, making it closer to the rent-to-sale ratio, and thus promoting housing prices to stabilize. Chart: Average loan interest rate for personal housing loans from financial institutions Data Source: Central Bank, CREIS Furthermore, earlier constraints on lowering interest rates for existing housing loans were limited due to narrow net interest margins for banks. The reduction in reserve requirements by the central bank has opened up space for this, as Pan Gongsheng stated, "The reduction in reserve requirements by the central bank is equivalent to providing banks with low-cost, long-term funds directly. Mid-term lending facilitation and open market operations are the primary ways in which the central bank provides banks with short to medium-term funds, and the decrease in interest rates will also lower the banks' funding costs." During this press conference, Pan Gongsheng pointed out "The People's Bank of China plans to guide banks to make batch adjustments to the interest rates on existing housing loans, bringing them closer to the interest rates on new loans. We expect the average decrease to be around 0.5 percentage points. The reason why we say it is an average is that loans are issued at different times, different regions, and by different banks, so the level of interest rates for existing housing loans issued at different times will vary. We predict the magnitude of the decrease to be an average figure. Banks lowering interest rates on existing housing loans will help further reduce borrowers' interest expenses. We estimate that this policy will benefit 50 million households, 150 million people, reducing households' interest expenses by approximately 150 billion yuan annually on average. This will help promote the expansion of consumption and investment, reduce prepayment behaviors, as well as compress the space for illegal substitution of existing housing loans, protect the legitimate rights and interests of financial consumers, and maintain the stable and healthy development of the real estate market." This time, both first-time and second-time existing housing loan interest rates are expected to be adjusted. On one hand, this will reduce the cost of purchasing a house for residents, promoting residential consumption to provide important support for the stable operation of the economy. On the other hand, it will also help restore market expectations, alleviate the wait-and-see sentiment due to expected declines in mortgage rates. Along with this rate cut, it will further reduce the cost for homebuyers to own property, driving the release of housing demand. 3. Lowering the threshold for purchasing second homes to guide the release of secondary housing demand for improvement The central bank has once again adjusted the down payment ratio for second homes to further support the release of secondary housing demand for improvement. Pan Gongsheng stated "To better support the rigid and diversified housing demand for urban and rural residents, commercial individual housing loans at the national level will no longer differentiate between first and second homes, with the minimum down payment ratio standardized at 15%. Each locality can implement targeted policies according to their own circumstances, autonomously determining whether to adopt differentiated arrangements and setting the lower limit of the minimum down payment ratio within their jurisdiction." On May 17th, the People's Bank of China and the China Banking and Insurance Regulatory Commission jointly issued a document, lowering the minimum down payment ratios for first-time and second-time commercial loans to 15% and 25% respectively. Subsequently, various regions quickly followed suit until now, only Beijing, Shanghai, and Shenzhen have yet to lower the down payment ratios for first-time and second-time commercial loans to the national minimum. Table: Existing down payment ratios for commercial loans in Beijing, Shanghai, and Shenzhen Data Source: Central Bank, CREIS For most second-tier and third-fourth tier cities, the down payment ratio for second homes has already been reduced to a low level. Lowering the down payment ratio again may have limited impact, but for core cities with high property prices like Beijing, Shanghai, and Shenzhen, most buyers of second homes usually complete the exchange through a "sell one buy one" approach, requiring funds from the sale of existing properties before purchasing a new one. The previously high down payment ratio for second homes imposed certain restrictions on purchasing new homes. The reduction in the down payment ratio for second homes will help alleviate the issue of having to buy before selling when switching homes, accelerating the smooth circulation of the first and second-hand real estate market. After the implementation of this policy, it is expected that various regions will accelerate the implementation of lowering the minimum down payment ratio for second homes to 15%, with Beijing, Shanghai, and Shenzhen also likely to follow suit. The reduction in the down payment ratio will further lower the threshold for purchasing a house, potentially driving an influx of demand for improved housing. 4. Provide more financial support for local state-owned enterprises to acquire and store inventory, but key factors affecting the pace of inventory acquisition have not changed in the short term On May 17th, the People's Bank of China announced the establishment of a 300 billion yuan guarantee housing refinancing fund, guiding financial institutions to support local state-owned enterprises, in accordance with market-oriented and legal principles, to purchase unsold commercial housing at a reasonable price, to be used for affordable housing with sales or rental requirements. However, the overall progress has been relatively slow. According to data disclosed by the central bank, as of the end of June 2024, the balance of the 300 billion yuan guarantee housing refinancing fund was 121 billion yuan. During the conference, Pan Gongsheng stated, "In order to further enhance the market-oriented incentives for banks and acquisition subjects, we will increase the proportion of the People's Bank's investment in the affordable housing refinancing policy from the original 60% to 100%. Originally, if a commercial bank provided 100 billion yuan, the People's Bank would provide 60 billion yuan. Now, if a commercial bank provides 100 billion yuan, the People's Bank will provide low-cost funds of 100 billion yuan, accelerating the process of reducing inventory in commercial housing." Increasing the central bank's investment proportion in the refinancing policy is beneficial for expanding the scale of bank loans, and combined with the central bank's interest rate reduction policy, is expected to accelerate the local inventory acquisition process. However, it is worth noting that local state-owned enterprises still face significant difficulties such as price matching and a mismatch of supply and demand, and these restrictive factors continue to exist in the short term. If the pace of state-owned enterprise inventory acquisition is to be accelerated, further policy adjustments may be necessary, such as expanding the range of uses for acquired inventories and expanding the types of acquisitions. 5. Incremental policies to revitalize existing land are on the way, more funds entering expected to accelerate the pace of revitalizing local land resources and alleviate the financial pressure on real estate companies The central bank also proposed to "support the acquisition of existing land by real estate companies. Building on the use of some local government special bonds for land reserves, we are studying the possibility of allowing policy banks and commercial banks to provide loans to support enterprises, under certain conditions, in market-oriented acquisitions of land from real estate companies, to revitalize existing land and alleviate the financial pressure on real estate companies."Pressure. When necessary, re-lending support can also be provided by the People's Bank of China. This policy is still being studied by us and the China Banking Regulatory Commission together.In order to revitalize existing land resources, the Ministry of Natural Resources had previously issued a document clarifying that local governments can support the recovery and acquisition of land for affordable housing through special bonds and other funds. The central bank further clarified its policy to support enterprises that meet certain conditions in the market acquisition of land from real estate companies, and provide refinancing support when necessary. This means that more supplementary funds will enter the market in the future. On one hand, high-quality real estate companies can actively seek loan support to acquire quality land from financially challenged companies, expand land reserves, and revitalize existing land. On the other hand, financially challenged real estate companies selling existing land will also help relieve financial pressure and further stabilize market expectations. 6. Operating property loans and the "16 Financial Measures" extended to the end of 2026 will ease the financial pressure on real estate companies Extending operating property loans will enhance the debt repayment capabilities of some real estate companies. In January, the central bank and the China Banking and Insurance Regulatory Commission jointly issued a notice on the management of operating property loans, allowing real estate development companies with standardized operations and good prospects to use their operating property loans to repay their existing loans and publicly issued bonds before the end of this year. This policy has been extended to the end of 2026. This is highly favorable for real estate companies with a large number of commercial real estate projects and stable operations, such as CHINA RES LAND, LONGFOR GROUP, China Merchants Shekou Industrial Zone Holdings, CHINA JINMAO, SEAZEN, etc., as they can use operating property loans for debt repayment and further enhance their debt repayment capabilities. Previously in April, the Shanghai branch of the central bank convened 8 major commercial banks in Shanghai, as well as 12 real estate companies including LONGFOR GROUP, Zhangjiang Group, Nanfeng Group, Dahua Group, for a centralized signing ceremony for operating property loans, with a total loan amount of 14.6 billion yuan. The extension of the "16 Financial Measures" will alleviate the debt repayment pressure on real estate companies. In July 2023, the central bank and the China Banking and Insurance Regulatory Commission issued a notice extending the applicability period of the real estate "16 Financial Measures" published in November 2022 to December 31, 2024. This press conference pointed out that the applicability period of the real estate "16 Financial Measures" has been extended to the end of 2026, indicating that financial institutions will be able to extend their existing financing for real estate development loans, trust loans, etc. in the real estate industry. From January to August 2024, the total sales of the top 100 real estate companies decreased by 38.5% year-on-year, the total funds raised by real estate development companies decreased by 20.2% year-on-year, and the total amount of real estate industry bond financing decreased by 29.7% year-on-year. In the situation where real estate sales and financing are still significantly declining, the extension of existing development and trust loans for real estate companies can effectively alleviate their debt repayment pressure. 7. The continuous advancement of the project "white list" is showing results Li Yunze pointed out, "To date, commercial banks have approved over 5,700 projects on the 'white list', with approved financing amounting to 1.43 trillion yuan, supporting the timely delivery of over 4 million housing units. Under the coordination mechanism, the support from financial institutions to the real estate industry is continuously expanding. By the end of August, our real estate development loans have achieved positive growth compared to the beginning of the year, reversing the downward trend of development loans. Mergers and acquisitions loans in real estate and housing rental loans have also increased by 14% and 18% respectively, providing strong financial support for the stable and healthy development of the real estate market." In the future, the project financing "white list" mechanism will continue to be deepened, playing an important role in ensuring the delivery of housing and easing the financial pressure on enterprises. It will also further alleviate residents' concerns about the delivery of pre-sold houses and help restore buyers' confidence.