The Impact and Outcome of China's Real Estate Inventory Reduction Policies

Today, we delve into a report by China's First Financial on the effectiveness of the "5.17" real estate policy one month after its implementation. This policy aims to reduce real estate inventory through refinancing.

Historical Context and Initial Observations

Historically, many Chinese cities have introduced policies to trade old properties for new ones, but other areas have seen minimal impact except for some success in Zhengzhou and Guangzhou. If the policies were adequate, the media would have heavily publicized them, but the current silence suggests the results needed to meet expectations.

The report notes that according to the central bank, the interest rate for newly issued personal housing loans in May was 3.64%, down six basis points (BP) from the previous month and 53 BP from the same period last year, marking a historic low.

Emerging Effects of Policy Adjustments

Interviews with First Financial reveal that the effects of the real estate market policy adjustments are gradually becoming evident. Most cities have abolished the minimum mortgage rate, furthering market-oriented interest rate reforms.

Additionally, a 300 billion yuan central bank refinancing tool, coupled with local subsidies, has been introduced to invigorate the housing rental market effectively.

Market Analysis and Support Mechanisms

Market analysis suggests that the support mechanisms from the central bank and fiscal policies can effectively stabilize the market, especially during industry downturns. This can aid in bottoming out the real estate cycle and promoting effective transitions in the real estate industry's development model.

Policy Benefits and Discontent Among Homeowners

The "5.17" policy eliminates the lower limit on commercial personal housing loan rates for first and second homes, providing buyers with some relief and reducing their financial burden. However, this move significantly affects those with existing mortgages.

Some may have purchased homes just a few months earlier or last year with interest rates above 4%, leaving them unable to benefit from the new lower rates, which creates discontent.

Current Buyers vs. Potential Buyers

On one hand, current buyers benefit from lower rates than last year. On the other hand, this policy fosters a wait-and-see attitude among potential buyers. If the recent rate cut fails to revive the real estate market, consumers anticipate that the government will further reduce rates, prompting them to delay purchases to avoid overpaying.

The current policy offers tangible benefits to home buyers, but it is ultimately a double-edged sword. As more buyers adopt a wait-and-see approach, the sustainability and effectiveness of future policies are increasingly compromised.

Considerations for Future Policies

Instead of gradually rolling out policies, it might be more effective to introduce measures that fully satisfy consumers' expectations from the start. However, this approach poses significant financial risks, which the Chinese government is likely trying to avoid.

In summary, while the current round of policies relieves home buyers, it generates more significant uncertainty and hesitation in the market. The ongoing watchful stance among consumers undermines the impact of incremental policy adjustments, suggesting that more decisive and comprehensive measures might be necessary, albeit with potential financial repercussions.