China city is first to cut mortgage downpayments, media say

[BEIJING] Major Chinese banks in the eastern city of Heze have cut mortgage downpayments for some homebuyers, the first such move in the country to boost flagging housing demand, local media reported.

The Big Four state-run lenders - Bank of China, Agricultural Bank of China, Industrial & Commercial Bank of China and China Construction Bank - lowered the downpayment ratio for first-time homebuyers in the city of 8.8 million in Shandong province to 20 per cent from 30 per cent, according to the reports.

China News Service-backed Economic View and Shanghai-based Cailian reported on the cut Thursday (Feb 17) evening. Caixin, citing unidentified sources, confirmed the reports Friday, saying Heze is taking "a leading step to shore up the sagging property market" as banks in most Chinese cities currently require new buyers to put down 30 per cent of the purchase price.

Chinese authorities have been racing to arrest a worsening slowdown in the property sector that is hurting growth in the world's second-largest economy. Home sales have been falling since July, exacerbating a cash crunch among developers.

"A change in the downpayment threshold will have a big impact on homebuyers," said Chen Wenjing, associate research director at China Index Holdings. "More smaller cities may follow suit, especially tier-3 and tier-4 ones that are seeing a heavy slowdown."

A Bloomberg Intelligence index of Chinese developer shares climbed 1 per cent as of 12.09 pm in Hong Kong. Chinese high-yield dollar bonds rose at least 1 cent on the dollar following initial weakness, according to credit traders, poised for the first gain of the week.

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The mortgage downpayment cut in Heze has sent a signal to other municipalities that authorities are making efforts to meet demand from first-time homebuyers, Cailian cited industry analysts as saying. In the city, Agricultural Bank of China has also cut mortgage rates for first-time buyers to 5.6 per cent from 5.95 per cent at the end of last year, the report said.

An official at Heze's housing department declined to comment.

Heze has been at the forefront of policy easing in the past. In 2018, it changed rules to make it easier for people to sell homes. The city also benefited from a redevelopment programme financed largely by central bank stimulus. Heze is the home town of Peng Liyuan, President Xi Jinping's wife and China's first lady.

Home sales in Heze's urban area dropped 58 per cent in December compared with a March high, according to E-house China Research and Development Institute.

Measures taken recently by Chinese authorities to address the nationwide property slump include boosting lending to developers and encouraging state entities to take over distressed assets of indebted borrowers.

Local media reported this month that the government has issued rules to make it easier for developers to tap cash from home presales, potentially easing the liquidity crunch engulfing the sector.

The move in Heze "signals policy easing in the property sector may have entered a new phase", said Zhiwei Zhang, chief economist at Pinpoint Asset Management. If the People's Bank of China doesn't ask lenders to revert the policies, more cities may follow suit, Zhang said. BLOOMBERG