Central bank move to boost property sales

A man examines property models at a housing sales center in Hangzhou, capital of Zhejiang province. [Photo/China Daily]

The People's Bank of China's decision to cut the reserve requirement ratio and the benchmark interest rates will encourage more homebuyers to buy bigger, newer homes and help developers reduce inventories in the first-and-second-tier cities, sources said on Wednesday.

"The reduction in the benchmark interest rates and the amount of cash that banks need to hold as reserves will have a significant impact on the property market. The cumulative decrease in interest rates, and subsequently mortgage rates, will reduce financing costs and the down payment requirements. The RRR reduction will make more financing available for home purchasers," said a research note by Savills East China, a unit of global property company Savills Plc.

Most experts, however, are of the view that the central bank moves have made it easier for people to purchase homes, especially the lower income households.

Zhang Qingmei, a 29-year-old sales manager in Beijing, said she would be able to buy her first apartment in the city after the rate cuts.

The new rates will entail cost savings of about 150,000 yuan ($23,437) based on her plan of borrowing 2.67 million yuan and repaying the same in equated installments spread over 30 years.

The interest rate cut, which now lowers the benchmark rate to 5.1 percent, will also enable her to pay less than what was based on the 5.4 percent benchmark rate every year.

"A client planned to buy a two-bedroom apartment last month. He is thinking of a three-bedroom one because the financing costs are lower. He is going to borrow 800,000 yuan more than what he planned last month," said Shen Guang, an account manager with Shanghai Bank.

The interest rate cuts may boost sales prospects for developers in the fourth quarter, which is often the peak season for property transactions and the time when developers launch new projects and offer more discounts, said experts.

Zhang Hongwei, chief analyst of Tospur Real Estate Consultancy, said: "We estimate that home prices may grow in Shanghai, Beijing and other cities and also in lower-tier cities with fast-growing populations, such as Nanjing and Suzhou. The spurt may not be that obvious in other lower-tier cities due to the existing huge inventories."

For developers, the RRR cut will have a positive impact on liquidity and funding costs, along with better access to domestic bond markets.

The RRR cuts means an estimated 700 billion yuan of liquidity could be released immediately, according to Wang Tao, chief economist in China at Swiss financial services firm UBS AG.