Lower down payment, reduce interest, extend loan term, and lower the threshold for buying houses in Beijing and Shanghai

Abstract: According to the National Bureau of Statistics, the price of second-hand housing in Beijing fell year-on-year in October 2023, and the price of second-hand housing in Shanghai has been negative for four consecutive months

Text: Tang Jun Yan Qinwen

Editor|Zhang Wei and Yuan Man

Beijing and Shanghai both lowered the threshold for buying a house.

On the afternoon of December 14, Beijing officials announced four housing policy adjustments, including adjusting the standard of ordinary housing, lowering the down payment ratio for house purchases, expanding the loan term, and reducing the mortgage interest rate.

After the adjustment, more than 70% of the houses in Beijing will be subject to the standard of ordinary residences, and can enjoy the preferential value-added tax policy at the time of housing transfer, the down payment ratio of the first house purchase in Beijing will be as low as 30%, and the second set will be as low as 40%, the maximum loan term will be 30 years, and the mortgage interest rate will be as low as the LPR (loan market prime rate) of the corresponding term, that is, 4.2%.

Later that day, according to the official WeChat public account of "Shanghai Release", Shanghai has adjusted ordinary housing standards and optimized differentiated housing credit policies since December 15. After the adjustment, the scope of ordinary housing in Shanghai has been expanded, with the minimum down payment ratio of 30% for the first unit and 40% for the second unit, and the mortgage interest rate is as low as 10 basis points (4.1%) minus the LPR of the corresponding term.

"The down payment ratio of the first and second houses has declined, which directly lowers the threshold for entering the market for the first set of rigid needs and the second set of improved housing demand. Yan Yuejin, research director of the E-House Research Institute, estimated that taking the purchase of a second house with a total price of 6 million yuan in Shanghai as an example, the adjusted down payment will be reduced by 1.2 million yuan.

At the same time as the release of the above news, the relevant departments of Beijing and Shanghai said that the adjustment is aimed at better meeting the needs of residents for rigid and improved housing.

The Beijing Branch of the People's Bank of China (hereinafter referred to as the "Central Bank") mentioned in a document that the background of this adjustment also includes the need to adapt to the new situation of major changes in the supply and demand relationship of the real estate market, and timely adjust and optimize the real estate policy.

According to the National Bureau of Statistics, in October 2023, the price of second-hand housing in Beijing fell year-on-year, and the price of second-hand housing in Shanghai has been negative for four consecutive months.

"In the case of major changes in the supply and demand of real estate, it is necessary to adjust the real estate policy in a timely manner. Dong Ximiao, chief researcher of Zhaolian, said that the policy adjustment in Beijing and Shanghai sent a positive signal to the market to stabilize the real estate market, which helped to boost the expectations and confidence of the real estate market.

"In 2024, the 'Xiaoyangchun' of Beijing's property market will definitely appear. After the release of the above news, Zhang Dawei, chief analyst of Centaline Real Estate, immediately said that the current policy is conducive to the market out of the downturn, and it is expected that the Beijing market will stabilize significantly from the last half of 2023 to the first quarter of 2024.

Regarding Shanghai's policy adjustment, Yan Yuejin said that its strength is in line with market expectations and will bring very good market feedback.

Lower the threshold: down payment as low as 30%, mortgage interest rate as low as 4.1%

The down payment ratio for buying a house in Beijing and Shanghai will be as low as 30%. It is estimated that the down payment ratio of home buyers in Beijing will be reduced by up to 40%, and the down payment ratio in Shanghai will be reduced by up to 30%.

On the afternoon of December 14, the Beijing Municipal Commission of Housing and Urban-Rural Development and other six departments jointly issued the "Notice on Adjusting and Optimizing the City's Ordinary Housing Standards and Individual Housing Loan Policies" (hereinafter referred to as the "Notice"), officially announcing three housing policy adjustments, including adjusting the standard of ordinary housing, lowering the down payment ratio for house purchases, and expanding the loan term.

At the same time, the Beijing branch of the central bank issued a document stating that the self-discipline mechanism for market interest rate pricing in Beijing has also passed a self-discipline resolution to reduce the lower limit of the interest rate policy for newly issued commercial personal housing loans.

Specifically, the first is to adjust the identification standards for ordinary residential buildings in Beijing, which is commonly referred to as the "luxury residential line".

After the adjustment, the building floor area ratio of the community is above 1.0 (inclusive), the construction area of a single set is less than 144 square meters (inclusive), the transaction price within the 5th ring is less than 85,000 yuan/square meter (inclusive), the transaction price is less than 65,000 yuan/square meter (inclusive) in the 5th ring - 6th ring, and the transaction price is less than 45,000 yuan/square meter (inclusive) outside the 6th ring is regarded as ordinary houses. After this adjustment, the proportion of ordinary houses in Beijing will increase to about 70%, and more families will be able to enjoy the preferential VAT policy when housing is transferred.

The second is to reduce the minimum down payment ratio for new housing loans. On the basis of the unified national policy, the minimum down payment ratio for personal housing loans for the first house (including commercial personal housing loans and housing provident fund personal housing loans) in Beijing will be uniformly reduced to 30%, and the minimum down payment ratio for personal housing loans for second houses will be reduced to 50% in the six urban districts (Dongcheng, Xicheng, Chaoyang, Haidian, Fengtai and Shijingshan districts) and 40% in the six non-urban districts.

At present, the lower limit of the minimum down payment ratio for commercial personal housing loans for the first and second houses in the country is unified at no less than 20% and 30%.

The third is to restore the maximum loan term from 25 years to 30 years. According to the relevant authorities, the adjustment cancels Beijing's strict control over the term of housing loans during the period when housing prices rise too quickly.

Fourth, the lower limit of the interest rate policy for new housing loans issued by commercial banks will be lowered.

Starting from December 15, the lower limits of the first and second sets of interest rate policies in the six urban districts shall not be less than the corresponding term LPR plus 10 basis points (4.3%) and not less than the corresponding term LPR plus 60 basis points (4.8%), respectively, and the lower limits of the first and second sets of interest rate policies in the non-urban six districts shall not be less than the corresponding term LPR (4.2%) and not less than the corresponding term LPR plus 55 basis points (4.75%), respectively.

Almost simultaneously with Beijing, another first-tier city, Shanghai, released a blockbuster good news on the same day. According to the official WeChat account of "Shanghai Release", Shanghai has adjusted the standard of ordinary housing and optimized the differentiated housing credit policy since December 15.

In terms of optimizing the housing credit policy, the minimum down payment ratio for buying a house in Shanghai will be lowered, and the lower limit of the interest rate policy for new housing loans issued by commercial banks will also be adjusted.

Specifically, the lower limit of the interest rate of commercial personal housing loans for the first housing is adjusted to not be less than the LPR of the corresponding term minus 10 basis points (4.1%), and the minimum down payment ratio is adjusted to not less than 30%, and the lower limit of the interest rate of commercial personal housing loans for the second housing is adjusted to not less than the LPR of the corresponding term plus 30 basis points (4.5%), and the minimum down payment ratio is adjusted to not less than 50%.

Prior to this, the mortgage interest rate for the first house in Shanghai was LPR+35BP with a down payment ratio of 35%, and the mortgage interest rate for the second house was LPR+105BP with a down payment ratio of 50% (ordinary house).

At the same time, the Lingang New Area of the Free Trade Zone and the six administrative districts of Jiading, Qingpu, Songjiang, Fengxian, Baoshan and Jinshan have implemented differentiated policies, and the lower limit of the interest rate for second home loans has been adjusted to not less than the corresponding term LPR plus 20 basis points (4.4%), and the minimum down payment ratio has been adjusted to no less than 40%.

The property market in Beijing and Shanghai is expected to stabilize

After the release of the policy adjustment of the property market in Beijing and Shanghai, many analysts said that the real estate market in Beijing and Shanghai is expected to stabilize significantly.

"There is a small spring in the Beijing market," Zhang Dawei said, adding that the market is expected to be in the last half of 2023 until the first quarter of 2024, with a monthly transaction volume of more than 15,000 second-hand houses.

Liu Chen, a researcher at the Bank of China Research Institute, also believes that from the perspective of historical data, December is one of the most active months for real estate sales, and this adjustment fully combines the policy space of the property market in Beijing, which has played a positive role in the full release of housing demand at the end of the year and the beginning of the year.

"The introduction of various policies in Shanghai this time is in line with market expectations and will bring very good market feedback. Yan Yuejin said that Shanghai has further reduced the cost of housing loans and the burden of taxes by optimizing policies such as down payment ratio, mortgage interest rate, and ordinary housing standards. The introduction of such policies is conducive to enhancing market confidence and will also play a positive role in stabilizing market expectations.

Since the second half of 2021, China's real estate market has experienced a long period of adjustment, with real estate investment and sales continuing to grow negatively. According to the data of the National Bureau of Statistics, the growth rate of real estate development investment in the country was -9.3%, negative growth for 19 consecutive months, and the growth rate of the sales area of commercial housing in the country was -7.8%, negative growth for 21 consecutive months.

According to the National Bureau of Statistics, in October 2023, the price of second-hand housing in Beijing fell by 0.2% year-on-year, the first time since April 2019. From July to October 2023, the price of second-hand homes in Shanghai fell year-on-year for four consecutive months, with the latest reading down 2.3%.

In this context, various measures have been intensively launched at the policy level in recent years to stabilize real estate from both sides of supply and demand.

"This adjustment is the full embodiment and implementation of the spirit of the meeting of the Political Bureau of the Central Committee at the end of July to put forward the 'timely adjustment and optimization of real estate policies' and the Central Economic Work Conference's emphasis on 'promoting the steady and healthy development of the real estate market', which is conducive to better meeting the reasonable housing needs of first-tier cities. Liu Chen said that on the whole, the real estate market in first-tier cities is still relatively resilient, and this adjustment is also another positive signal after the first-tier city of Shenzhen and the second-tier city of Xiamen introduced heavy adjustment policies in November. With the continuous optimization and liberalization of policies in first-tier cities, it is expected to drive the recovery of the real estate market in the corresponding regions to advance steadily, leading the real estate market to gradually come out of the bottom area and stabilize and recover.

On the other hand, this policy adjustment is expected to have little impact on commercial banks. Dong Ximiao said that the current growth of commercial banks' housing loans is slowing down, and some banks are even experiencing negative growth. At the same time, although Beijing's mortgage interest rates have been lowered, they are still higher than the national average, and the pressure on bank interest margins is limited.

For the next policy, Dong Ximiao suggested that we should continue to improve the macro-prudential management of real estate finance on the supply side, adjust the "three red lines" requirements for real estate enterprise financing, suspend the implementation of real estate loan concentration management, and support banks to be more willing and able to meet the financing needs of real estate enterprises, especially private real estate enterprises. Optimize the regulatory provisions on pre-sale funds for commercial housing, and more flexibly meet the daily use needs of real estate enterprises on the premise of ensuring that funds are not misappropriated.

(Caijing Xi Geng Xiya also contributed to this article; the author is a reporter from Caijing)