Chinese banks are pumping new money into stalled housing projects and cutting interest rates on existing mortgage loans. The goal is to financially transform the country’s beleaguered real estate sector.
The banks are paying a high price for their efforts. Policymakers are counting on banks of all stripes – from urban commercial banks to state-owned giants such as the Industrial and Commercial Bank of China and Everbright Bank of China – to stimulate a market that has been hit hard by falling housing prices and losses by real estate developers since the Covid-19 pandemic.
Analysts expect that real estate financing initiatives will lead to mixed results in the banking sector. An industry forecast from Ping An Securities expects an overall net profit growth rate of just 1% for all listed banks in 2025.
Nearly 300 municipal governments are working with banks to revive unfinished development projects. New loans exceeded $400 billion as of November China banking and insurance news. Nearly 4 million new units are expected nationwide by the end of 2024.
In Taiyuan, Everbright recently arranged a $30 million syndicated loan to build an apartment complex. In Wuhan, bank loans revived two construction projects that added about 500 units in November.
Meanwhile, banks are responding to the central bank’s call to lower current mortgage interest rates. The goal is to boost consumer confidence as the decline in home values since 2021 has wiped out the main savings platform for Chinese families.
People’s Bank of China Governor Pan Gongsheng said the interest rate cuts would average 0.5 points and benefit 50 million households. Interest payments to banks across the country were expected to fall by $20 billion annually. The impact will be mitigated by reductions in bank reserve requirements and savings deposits from homeowners with lower down payments, Pan said.
Nationally, the average long-term mortgage interest rate was 3.6% in November, down from 3.85% in September.
Many lenders offer refinancing with adjustable rates. For example, the Bank of China offers homeowners lower interest rates with mortgages that adjust every three, six or 12 months. In some cities, banks have reduced interest rates for first-time homeowners. For example, the Guangzhou branch of China Merchants Bank cut its interest rate to 2.85% in October.
