(Yicai) May 7 -- China’s central bank trimmed the interest rate on loans from the personal housing provident fund, which is a compulsory savings plan for employers and employees and can only be used for house-related purchases, today, as part of a broader package of economic stimulus measures, in a clear signal that stabilizing the real estate market is now a top priority for the government.

The personal housing provident fund loan rate will be reduced by 0.25 percentage point, Pan Gongsheng, governor of the People’s Bank of China, said at a press conference today. The rate of first-home loans with maturities of over five years will drop to 2.6 percent from 2.85 percent, and the rate for other terms will be adjusted too.

The move could save homebuyers more than CNY20 billion (USD2.7 billion) in interest payments per year, Pan added.

This is the second time in the past year that the central bank has cut the housing provident fund loan rate and it is now at its lowest level ever, said Zhang Bo, director of think tank 58 Anjuke Research Institute. The reduction sends a clear signal of the government’s intent to support the housing market.

The central bank also lowered the reserve requirement ratio by 0.5 percentage point, which is projected to inject around CNY1 trillion (USD138.3 billion) of long-term liquidity into the financial system, Pan said.

In addition, starting tomorrow, the interest rate on seven-day reverse repo operations will be reduced to 1.4 percent from 1.5 percent. This is expected to prompt a corresponding 0.1 percentage-point drop in the benchmark loan prime rate, which is due out on May 20, to 3.5 percent.

The new round of RRR and interest rate cuts will tangibly boost housing demand and help developers lower their financing costs, Chen Wenjing, director of policy research at the China Index Academy, told Yicai.

Consecutive rate cuts have pushed mortgage rates to record lows, and this could have a significant cumulative effect on market sentiment, said Lu Wenxi, senior analyst at Shanghai Centaline Property Agency. With more supportive policies on the way, the likelihood of a rebound in housing sales is rising.

Greater Loan Support

China will speed up the formation of financing mechanisms that better align with the country’s evolving property development model, said Li Yunze, director of the National Administration of Financial Regulation.

“This includes refining the rules for loans tied to property development, personal housing and urban renewal projects, in order to guide financial institutions to provide stable financing for real estate and better meet diverse housing needs, while also ensuring financial support for high-quality housing projects,” Li said.

These new financing mechanisms will provide greater loan support for both developers and homebuyers, Chen said.

Li’s emphasis on high-quality housing projects indicates stronger financial backing for these developments, said Yan Yuejin, deputy director of Shanghai-based E-house China Research and Development Institute.

Developers building higher-end housing are likely to get more policy support, such as direct funding and preferential terms, to help spur demand from homebuyers looking to upgrade their living space, Chen said. The property market should keep improving this month, she added.

The financing “white list” scheme for real estate projects, which was launched early last year to help eligible developers struggling to deliver pre-sold properties on time to get access to loans, will continue to be refined to ease developers’ liquidity pressures and stabilize the sector, Chen said.

Some CNY6.7 trillion (USD 930.6 billion) of ‘white list’ loans have already been approved, and they are supporting the construction and delivery of more than 16 million residential units, Li said.

Editors: Tang Shihua, Kim Taylor