China to cut provident fund loan interest rate for first-time home buyers

China to cut provident fund loan interest rate for first-time home buyers
Unfinished apartment buildings stand at a residential complex developed by Jiadengbao Real Estate in Guilin, Guangxi Zhuang Autonomous Region, China on Sep 17, 2022. (File photo: Reuters/Eduardo Baptista)

BEIJING: China’s central bank said on Friday (Sep 30) it would lower the interest rate for housing provident fund loans by 0.15 per centage points for first-time home buyers from Oct 1, suggesting an urgency for policymakers to prop up the embattled property market.

The move followed the finance ministry’s tax refunding policy and the central bank and banking regulator’s relaxation of a floor on mortgage rates for some first-time home buyers, part of an effort by authorities to stabilise the ailing housing market.

China last adjusted the housing provident fund interest rate in 2015.

Following the rate cut, the 5-year-and-below interest rate for first-time buyers borrowing from the government’s housing provident fund to finance a home purchase would stay at 2.6 per cent, while the 5-year-above rate would stand at 3.1 per cent, the People’s Bank of China (PBOC) said in a statement on its website.

The interest rate of the fund for buyers’ second home purchase was unchanged, the PBOC said.

“The interest rate cut for housing provident fund loans targets home buyers with rigid housing demand,” said Yan Yuejin, research director of Shanghai-based E-house China Research and Development Institute.

“Such a move, together with the finance ministry’s policy support today and the central bank’s policy yesterday, are the three major stimulus measures to stabilise the property market. They will shore up the housing market in the fourth quarter remarkably.”

China is gearing up to tackle a deepening property crisis – a key drag on the world’s second-largest economy, as home buyers refuse to make mortgage payments on unfinished buildings and developers’ financial strains further hurt confidence in the sector.

The PBOC pledged to “make full use of policy tools based on local conditions to support housing demand from home buyers and upgraders” in a statement after a quarterly meeting of its monetary policy committee.

The finance ministry said on Friday that China will refund individual income tax for home buyers if they sell their homes and purchase a new one in the same city within one year after selling, effective from Saturday until the end of 2023.

The central bank said on Thursday that Chinese local governments may relax the floor on mortgage rates for first-time home buyers in some cities in phases.

Source: Reuters/st