Borrowing rates

China cuts borrowing rates as real estate crisis deepens

China lowers borrowing rates as real estate

  • The five-year loan prime rate (LPR) was lowered by the People’s Bank of China (PBOC) by 1.5 percentage points, the biggest drop ever.
  • The world’s second largest economy is facing a real estate crisis that has stalled some construction projects.
  • The real estate crisis in China is estimated to have reduced the value of the sector by more than $1 trillion in 2017.

As government authorities attempt to stimulate the crisis-hit real estate market, China’s central bank has lowered its lending rate.

The five-year loan prime rate (LPR) was lowered by the People’s Bank of China (PBOC) by 1.5 percentage points, the biggest drop ever.

The world’s second largest economy is facing a real estate crisis that has stalled some construction projects.

Lockdowns caused by the country’s stringent zero Covid regulations are also impacting businesses and customers.

China calls for efforts to help struggling economy.

The PBOC lowered the five-year rate to 4.2% on Monday, which will reduce the cost of mortgage payments across the country.

The one-year loan prime rate, which is typically used to rate business loans, was also cut from 3.7% to 3.65%.

The actions are part of a broader initiative to support the housing market, according to Iris Pang, chief economist for Greater China at ING Bank.

She said in a message on Monday that “at the same time, some local governments have started lending to property developers to continue building unfinished housing.”

“The two measures taken together should allay the fears of existing mortgage borrowers,” she continued.

The real estate crisis in China is estimated to have reduced the value of the sector by more than $1 trillion in 2017.

According to official figures, home sales in China have declined for 11 consecutive months. Since China established a private property market in the late 1990s, this is the longest recession.

A number of Chinese developers have halted construction of previously sold homes due to financial worries.

Hundreds of homebuyers are also known to have threatened to stop making their mortgage payments unless work resumes.

The Chinese government has hinted that its annual economic growth target of 5.5% may not be met.

After its quarterly economic conference in July, the Politburo, the ruling Communist Party’s top decision-making body, made no mention of the official growth target. Leaders would just “try to get the best results possible,” he said.

Chinese Premier Li Keqiang announced last week that the government would take additional measures to increase investment and consumption in the country. This happened as consumption and production indices unexpectedly slowed.

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