On September 27th, the Central Political Bureau meeting set the tone for real estate policies: to promote the stabilization of the real estate market, to strictly control the increment, optimize the stock, and improve the quality of commodity housing construction, to increase the investment in loans for “whitelist” projects, and to support the revitalization of idle land in stock. To address public concerns, we need to adjust the housing purchase restriction policy, lower the interest rates of existing mortgage loans, accelerate the improvement of land, fiscal, and financial policies, and promote the construction of a new model for real estate development.
This is the most clear and anticipated policy adjustment in the current round of real estate policies so far.
Considering the unusual nature of this Politburo meeting, we expect the policy to be implemented before the long holiday. Sure enough:
On September 29th, the People’s Bank of China, the State Administration for Financial Regulation, and other financial policies related to the adjustment of existing housing loan interest rates, the unification of down payment ratios for first and second homes, and other real estate related financial policies were intensively introduced.
Especially regarding the specific adjustment methods and timing of the interest rates on existing housing loans that everyone is concerned about, the central bank has provided a clear answer:
Firstly, allowing existing housing loans that meet certain conditions to renegotiate the percentage of points added, promoting the reduction of interest rates for existing housing loans. The central bank has issued the “Initiative on Batch Adjusting the Interest Rates of Existing Housing Loans” to guide the self regulatory mechanism for market interest rate pricing. It clarifies that commercial banks should, in principle, implement batch adjustments to the interest rates of existing housing loans (including first home, second home, and above) before October 31, 2024.
After the batch adjustment, the borrower’s existing mortgage interest rate will generally be reduced to no less than 30 basis points below the loan market quoted interest rate (LPR), that is, “LPR-30 basis points”, making the interest rate level close to the national new mortgage interest rate, with an expected average decrease of about 0.5 percentage points;
Secondly, establish a regular adjustment mechanism: Starting from November 1, 2024, when the deviation between the interest rates of floating rate commercial personal housing loans and newly issued commercial personal housing loans nationwide reaches a certain degree, borrowers can negotiate with banking and financial institutions to replace existing loans with newly issued floating rate commercial personal housing loans. The renegotiated markup should reflect changes in market supply and demand, borrower risk premium, and other factors. The markup should not be lower than the lower limit of the commercial personal housing loan interest rate markup in the city where the replacement loan is located.
Here, it should be noted that regarding the interest rates of existing housing loans, I have always advocated for establishing opportunities for regular adjustment and stabilizing market expectations. The biggest highlight of the central bank’s adjustment of existing housing loan interest rates this time is the establishment of a normalized adjustment mechanism.
According to the central bank’s statement, in August 2023, in order to fully respond to the demands of the masses and adhere to the principle of prioritizing urgent needs, the central bank, together with the State Administration for Financial Regulation, guided commercial banks to adjust the interest rates of existing housing loans in batches through negotiation and other methods, achieving good results. However, due to the current pricing mechanism of mortgage interest rates, the range of interest rates cannot be adjusted independently, and the contradiction between new and old mortgage interest rates has once again accumulated and expanded recently. Commercial banks will conduct another batch adjustment of eligible existing housing loans through industry self-discipline and coordination, lowering interest rates to near the national new housing loan interest rate.
But the above methods only treat the symptoms and not the root cause. To fundamentally solve the problem of interest rate differentials between new and old housing loans, it is necessary to deepen the market-oriented reform of interest rates, while maintaining the seriousness of contracts, breaking down institutional barriers, and promoting independent negotiation and dynamic adjustment between commercial banks and borrowers based on market-oriented principles.
In this way, after establishing a market-oriented mechanism, the interest rate of existing housing loans can be dynamically adjusted according to the market interest rate situation, completely solving this problem from a mechanism perspective.
In this adjustment of the real estate policy, we must praise the central bank and give it awesome. Under the existing environment, this is the biggest policy that the central bank can achieve!
The Politburo meeting also mentioned the need to adjust the housing purchase restriction policy, reduce the interest rate of existing housing loans, accelerate the improvement of land, fiscal, and financial policies, and promote the construction of a new model for real estate development.
This time, the major cities did not procrastinate either:
On the evening of September 29, the first thing was to optimize the real estate policy in Shanghai and adjust the purchase restriction policy. Although the intensity was lower than my expectation, it was adjusted after all. In addition, the VAT exemption period for transferring individual housing was adjusted from five years to two years. Guangzhou, as expected before, completely cancelled the purchase restriction policy. Shenzhen retained the purchase restriction for the core area, but also significantly relaxed the conditions for non registered residence residents to buy houses. At the same time, the purchase restriction for non core areas was cancelled. The exemption period for value-added tax has also been adjusted from five years to two years.
Among the four first tier cities, although Beijing has not yet made the latest adjustments, it is highly likely that corresponding policies will be introduced before the long holiday.
After this adjustment, I personally believe that from a broad policy perspective, most of the main policies have been implemented. Considering the strength of this policy, the market should have a positive response.
For the next step of the real estate market, I have a few personal judgments:
Firstly, the pessimistic expectations in the market will be somewhat reversed, and there will be an increase in positive factors in the market. There is a high probability of a short-term rebound in trading volume
Secondly, considering the current fundamentals of the real estate market, it is not easy to truly stop the decline and rebound by the end of the year. Efforts need to be made to clear risks, such as the issue of guaranteed delivery of properties and the risk issues faced by real estate companies;
Thirdly, everyone must realize that the real estate market has entered a new cycle, and policies such as purchase restrictions have basically exited the historical stage of real estate. The construction of new models and systems is of paramount importance for the future;
Fourthly, in terms of market demand, the market is moving from an incremental era to a stock era, and improvement demand is the mainstream. It is necessary to further optimize the policy system for improvement demand.