Housing market measures will help

Following earlier steps, on Sept 30 the key regulators on the property market formally announced a set of measures to support the housing market. We do not expect this package to lead to a rapid recovery of the real estate sector. Nonetheless, in our view these measures are substantial enough to improve sentiment and sales on the property market. But what about the overall growth outlook?

Since the housing market slowdown started to bite and overall economic growth started to disappoint early this year we have been expecting policymakers to relax property market policies. In our view, such relaxation of property policies is part of a broader effort by policymakers to support growth, even though - based on recent comments by senior policymakers - we do not expect very large and high profile measures.

Following some earlier steps, on Sept 30 the the People's Bank of China and the China Banking Regulatory Commission formally announced a set of measures to support the housing market.

The key measures are:

First, the minimum mortgage loan rate for first home buyers will be cut from 90 to 95 percent of the benchmark lending rate to 70 percent (the benchmark rate now stands at 6 percent). Second, if a mortgage of a first home has been fully repaid, the mortgage associated with a second home purchase will be treated as a first mortgage, which means a substantially lower minimum down payment (from 60-70 percent to 30 percent) and mortgage loan rate (from 110 percent of the benchmark rate, for a second home, to the now 70 percent noted above).

Third, basically, the ban on mortgages for a third home that was in place in much of the country has been removed. When households with more than two houses apply for a mortgage for an additional home, banks are now asked/allowed to make decisions based on prudential considerations, instead of declining the application.

Four, commercial banks are encouraged to issue mortgage backed securities. Five banks are also asked to support the funding needs of "quality" developers; in addition, the interbank bond issuance of qualified developers and a REIT pilot scheme will be promoted.