China cuts 5-year mortgage rate as real estate crisis deepens

China lowered the mortgage lending rate for the second time this year, as the country’s central bank seeks to curb the repercussions of a liquidity crunch in the real estate sector.

The five-year loan prime rate was lowered to 4.3 percent from 4.45 percent on Monday, beating the median forecast from economists polled by Bloomberg for a May rate cut that was The biggest ever.

The reduction in the standard, which is based on the rates offered by local lenders and published by People’s Bank of Chinawill reduce borrowing costs on new mortgages across the country and boost the country’s debt-ridden real estate sector, which accounts for nearly a third of annual economic output.

The one-year LPR, which is also based on domestic Chinese lending rates and used primarily for pricing corporate loans, was reduced to 3.65 percent from 3.7 percent.

A bigger-than-expected cut in the benchmark mortgage rate helped boost the Hang Seng mainland real estate index in Hong Kong, which rose 1.4 percent on Monday. But it did little to boost the broader markets, with the benchmark CSI 300 index of shares listed in Shanghai and Shenzhen up just 0.7 percent.

Analysts at Capital Economics said the cut in the five-year LPR would not affect most pending mortgage rates until the beginning of next year, but the move indicated that the People’s Bank of China was “particularly concerned about problems in the housing market.”

Strategists have warned that a rate cut is unlikely to cure a The crisis of confidence faced by Chinese developers, many of which are struggling to finish unfinished ‘pre-sold’ homes for which advance payments have already been received. The construction financing method has become more and more popular as the authorities have cracked down on excessive influence in the sector in recent years.

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“So far, lower mortgage rates have not translated into higher property sales due to a lack of confidence in major developers and the pre-sale model,” said David Chow, global market strategist at Invesco. “Policy makers may need to implement more unconventional measures or even some kind of intervention in order to restore confidence in the property market.”

Last week, Country Garden, the country’s largest real estate conglomerate by sales, estimated first-half profit By up to 70 percentin the latest indication that the funding crunch was previously limited to high-risk developers such as China Evergrande and spread to the rest of the industry.

Analysts said the central bank was likely to cut the five-year foreign exchange rate at least again this year. “When the market sees progress in building unfinished projects, we may see an improvement in home buying sentiment and house prices should stabilize,” said Iris Yang, chief economist for Greater China at ING.

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