Financial Management Department Encourages Negotiations Between Banks and Borrowers to Adjust Contract Agreements
At a press conference held on July 14 by the State Council Information Office, Zou Lan, Director of the Monetary Policy Department of the Central Bank, announced the support and encouragement for commercial banks to independently negotiate with borrowers to change contract agreements or replace existing loans with new ones. This marks the first response from the financial management department regarding the adjustment of stock mortgage interest rates.
Is it possible to lower the “stock mortgage interest rate”? Following the postponement of the two policies in the “Financial 16 Articles,” many are curious about the outcome of the “Guaranteed Delivery” policy. According to Chen Wenjing, director of market research at the Middle Finger Research Institute, this press conference signals a positive shift. The current real estate policy is still focused on support, and market participants should maintain reasonable expectations.
Zou Lan explained that in the first half of this year, a total of 3.5 trillion yuan of personal housing loans were issued, surpassing last year’s same period by 510 billion yuan, indicating increased support for housing sales. However, the overall balance of personal housing loans has slightly decreased due to changes in factors such as wealth management yield and mortgage interest rates.
The director further clarified that since 99% of mortgages utilize a floating rate mechanism, an additional point is selected based on market supply and demand when signing the contract, while the additional points remain fixed throughout the contract period. Although the loan interest rate automatically decreases with the decline in the benchmark loan market quotation rate, many stock mortgage customers are still burdened with a relatively high repayment interest rate due to the unchanging additional point.
The early repayment phenomenon is also attributed to changes in financial management. Zou Lan noted that the wealth management market experienced some disruptions at the end of last year, prompting adjustments in asset allocation. Recognizing the impact of prepayment on the profitability of commercial banks, the monetary policy department supports and encourages banks to independently negotiate with borrowers to modify contract agreements or replace existing loans with new ones based on marketization and the rule of law.
Chen Wenjing emphasized that demand-side parties are seeking policy accuracy, and there is potential for further optimization of housing credit policies, particularly in core first- and second-tier cities. While reducing down payment ratios and mortgage interest rates are important aspects, expectations for a reduction in stock mortgage interest rates appear weak.
During the extended overheating stage of the market, policies have room for optimization. The real estate market has demonstrated overall stability since the beginning of this year, but it will take time for some companies to gradually alleviate the accumulated risks. Unrestrained expansion and high debts have characterized the operations of certain development companies over an extended period.
Zou Lan pointed out that personal housing advances and advances from upstream and downstream enterprises comprise almost 70% of liabilities, while financial liabilities make up about 31%, with bank loans accounting for less than half. The total balance of real estate loans exceeds 50 trillion yuan, with personal housing loans accounting for nearly 40 trillion yuan. Zou Lan assured that the risks associated with loans for unfinished housing projects that have been sold but not delivered on time are controllable and make up a relatively small proportion of the total amount.
To address industry risks, the financial management department has collaborated with relevant departments to increase support for guaranteed delivery buildings, stabilize key financing channels such as bonds and equity, and promote the development of the housing leasing market. This includes initiatives such as special loans for guaranteed delivery buildings, credit enhancement support for bond issuance, and financial services for housing leasing.
With regards to the current real estate market situation, the People’s Bank of China and the State Administration of Financial Supervision have extended the deadlines for two policies in the “Financial 16 Articles” until the end of December 2024. Financial institutions are guided to continue extending the financing period for real estate companies and increase financial support for guaranteed delivery buildings. Additionally, the loan support plan for guaranteed delivery buildings will be extended until the end of May 2024.
Looking ahead, Zou Lan affirmed the commitment to the principle that “houses are for living in, not for speculation.” The financial management department will work with relevant departments and local governments to ensure the delivery of buildings, prioritize people’s livelihood, and maintain stability. This will involve meeting the industry’s reasonable financing needs and creating a favorable financial environment for the orderly clearing of industry risks.
Chen Wenjing believes that support for real estate funds will continue to focus on “guaranteed housing,” the leasing market, and corporate financing. The extension of the stock financing period for real estate enterprises will help alleviate financial pressure and stabilize market expectations. In the short term, further financial support for enterprises will be based on… [end of article]