China keeps loan prime rate unchanged to stabilize housing sector

China’s central bank has kept interest rates unchanged as a way to support the steady, healthy development of its real estate sector, a key component of the national economy.

The steady loan prime rate (LPR) fixings came after the People’s Bank of China last week left its medium-term policy rate unchanged, while draining some liquidity from the banking system.

Analysts say policymakers are carefully striking a balance between supporting economic recovery while not creating new economic risks.

“We have a lot of central banks this week aggressively increasing interest rates. So in order to keep the Chinese currency yuan at the stable level, I think this is one of the concerns for the PBOC to put the rate unchanged this morning. Also on the domestic side, we see the August economy data released a few days ago. Especially the credit data, we see a large improving [improvement] for this time. So, I think that also gives PBOC the confidence that the rate cut can take a pause at this moment,” said Jimmy Zhu, chief strategist with Fullerton Research.

Since the five-year LPR rate affects the pricing of mortgages, the steady rates are believed to be part of government efforts to prop up the housing market.

The data for the housing sector released last week was not strong, with new home prices in 70 major Chinese cities falling 2.1 percent year on year last month, and that for pre-owned homes going down by 3.3 percent.

Sales by floor area were also down, coming in at 878.9 million square meters in the first eight months, down 23 percent from a year earlier, and only 0.1 percentage points better than the rate for the first seven months.

Housing experts are looking for a rebound in property sales in the coming months, based on the steady or falling interest rates.

“The LPR rate cut can have a stimulating effect on home purchases, but the effect is limited. And sales figures also rely on supply and demand. For instance, Shanghai is going to release this year’s fifth batch of new housing in September and October. The sales of new homes will go up, and that will boost the sales of pre-owned homes and the whole housing market,” said Yang Yulei, chief analyst of the Shanghai Lianjia Research Institute.

Real estate agencies do report they’re now seeing more potential buyers coming in to look things over.

“I took around three groups to view apartments every week in August. Most were clients looking to upgrade their housing conditions. The August figure was steadier than those of the previous two months,” said Lyu Jianhao, a sales agent of Shanghai Lianjia Zhongkai Office.

Other than working with the LPR rates, other government moves to firm up the housing market include accelerating loan approvals and shortening the time required to release mortgage funds to buyers.

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