Deteriorating Economy in China... Will They Tackle Real Estate?

Voices Calling for Real Estate Policy from Within Begin
People's Bank Likely to Cut 5-Year Maturity LPR for Mortgages on the 20th

[Asia Economy Senior Reporter Cho Young-shin] As the Chinese economy continues to deteriorate, voices calling for real estate policies from within have begun to emerge. This is interpreted as a kind of backlash against President Xi Jinping's real estate philosophy that "a house is a place to live, not a speculative object."

Source: National Bureau of Statistics of China

According to China Economic Net and First Financial on the 16th, the cumulative growth rate of real estate development investment in China from January to July recorded a negative (-) 6.4%. This is 1 percentage point worse than the previous six-month cumulative -5.4%. Last month, the prices of new homes in 70 small and medium-sized cities in China also fell by as much as 0.9% year-on-year, marking the largest decline since September 2015.

Chinese media have emphasized the need for active real estate policies, citing recent suspensions of apartment construction by Chinese real estate development companies and some residents' refusal to repay mortgage loans as factors further worsening market sentiment.

Yan Weijin, head of research and development (R&D) at Shanghai E-House China, said, "The Chinese real estate market is cooling down," adding, "More proactive real estate policies nationwide are urgently needed to promote market recovery."

Within China, the dominant view is that the 5-year Loan Prime Rate (LPR), which directly affects the real estate market, will be cut. The LPR effectively serves as China's benchmark interest rate.

Wang Qing, an analyst at Dongfang Jinxing, a Chinese credit rating agency, said, "The economic recovery is slowing down," emphasizing, "To ensure momentum for economic recovery in the second half of the year and stabilize employment, macro policies including monetary policy must be implemented in a timely manner." He predicted, "The People's Bank of China is likely to cut the 5-year LPR on the 20th, and considering the capital costs of commercial banks, there is room for additional adjustments to mortgage rates."

[Image source=Yonhap News]

The People's Bank of China, the central bank, had eased the real estate market by cutting the 5-year LPR by 0.15 percentage points in May. On the other hand, the 1-year LPR has been frozen for six months after two cuts in December last year and January this year. The day before, the People's Bank of China lowered the Medium-term Lending Facility (MLF) loan rate.

Fang Yi, Chief Economist for Greater China at Jones Lang LaSalle (JLL), said, "The People's Bank of China cut the 1-year MLF loan rate by 0.1 percentage points and also lowered the 7-day repurchase agreement (RP) rate by 0.1 percentage points," forecasting that this will stimulate new demand in vulnerable parts of the economy.

The Chinese authorities' attention is also rapidly shifting to real estate. The Central Political Bureau of the Communist Party recently diagnosed that the real estate market is becoming more difficult and instructed, "Local governments should complete suspended apartments and do their best to stabilize people's livelihoods."

The China Banking and Insurance Regulatory Commission also demanded the financial sector to "strengthen cooperation in work, such as facilitating related financial services according to law, to ensure a virtuous cycle and sound development of the real estate market."

Meanwhile, last month, China's industrial production increased by only 3.8% year-on-year, and retail sales rose by just 2.7% year-on-year. Additionally, the youth unemployment rate (ages 16?24) hit a record high of 19.9%, with production, consumption, and employment all falling short of expectations.

This content was produced with the assistance of AI translation services.