China’s central bank, which has been stimulating the economy by supplying liquidity and lowering policy rates amid a slowdown in economic recovery, has decided to cut interest rates on commercial banks’ existing real estate loans by the end of October to revitalize the sluggish real estate market.
According to China’s state-run Xinhua News Agency and China Central Television (CC) on the 29th, the People’s Bank of China instructed commercial banks to announce an interest rate adjustment initiative. The plan stipulates that commercial banks should lower their existing real estate loan rates, which exceed the LPR-0.3 percentage point, to the LPR-0.3 percentage point level before October 31. The People’s Bank added that the rate cut applies not only to first-time homes but also to second and more homes, and that 18 commercial banks across the country should in principle announce their respective rate adjustment details by October 12.
Earlier on the 24th, People’s Bank of Korea President Pangong-sung announced his plan to match the existing home loan interest rate with the new interest rate at a joint press conference with financial authorities. At that time, he announced an economic stimulus package including a 0.5%p cut in the bank’s reserve ratio (RRR) and a 0.2%p cut in policy rates, predicting that LPR and deposit rates will also be lowered by 0.25%p due to policy rate adjustments.
Bank president Pan had predicted that if commercial banks were to cut interest rates on existing real estate loans to the level of new loan rates, the average cut in real estate loan rates would be around 0.5%p. CCTV explained that the rate cut by commercial banks would actually cause real estate loan rates to fall by around 0.5%p on average.
As of the end of July this year, the average interest rate on all real estate loans was around 4.06%, and the average rate on new real estate loans between January and August this year was 3.61% on average, according to the People’s Bank of China data. The five-year LPR, the benchmark for home loans in China, has been in place since it was cut to 3.85% in July.
On the 24th, the People’s Bank of Korea officially announced that it would lower the minimum down payment ratio to 15% for real estate loans. In other words, the maximum limit on real estate loans is rising to 85% of the house price. Measures such as raising the ratio of 300 billion yuan in guaranteed housing (housing affordably supplied to low-income families) re-loan funds created in May this year from 60% to 100% and extending the deadline for real estate policy documents scheduled to expire at the end of this year were also announced.
SOPHIA KIM
US ASIA JOURNAL
