(Yicai) May 9 -- Several major cities and regions in China have followed the central bank and lowered the interest rates of housing provident fund loans.

China’s four first-tier cities -- Beijing, Guangzhou, Shanghai, and Shenzhen -- other cities like Changsha, Xi’an, and Wuhan, as well as Gansu and Hainan provinces, issued notices yesterday to trim their housing provident fund loan rates to support first-time home buyers against the backdrop of a sluggish property market.

Pan Gongsheng, governor of the People’s Bank of China, announced on May 7 that the personal housing provident fund loan rate will be reduced by 0.25 percentage point, with the rate of first-home loans with maturities of over five years dropping to 2.6 percent. This could save homebuyers over CNY20 billion (USD2.7 billion) in interest payments per year, Pan noted.

The move, combined with recently lifted loan ceilings in many cities and regions, will enhance the efficiency of housing provident funds and support first-time home buyers, said Li Yujia, chief researcher at the Guangdong Urban-Rural Planning and Design Research Institute.

For example, a CNY3 million (USD415,200) home requiring a 30 percent down payment and a 30-year mortgage would see its total interest payment value halve and monthly payments cut by nearly 30 percent, as the mortgage rate dropped to 3.01 percent from the peak 5.74 percent in 2021.

The reduction in housing provident fund interest rates may trigger a cut in commercial mortgage rates, which could be even larger than the recent loan prime rate cut, according to Soochow Securities.  

Mortgage rates are already at historic lows, and based on the current trend, rates under 3 percent may become mainstream, said Lu Wenxi, senior analyst at Centaline Property’s Shanghai branch. The weighted average of interest rates of newly issued commercial mortgages was 3.11 percent in the first quarter of this year, according to data from the PBOC.

Persistently low rates are reshaping buyer behavior. A potential buyer told Yicai that falling rates and discounts offered by property developers make this an ideal time to purchase a home. Despite that, buyers remain cautious in avoiding excessive risks.

Editor: Futura Costaglione