China’s banks are pumping fresh funds into stalled housing projects and cutting rates on existing mortgages. The goal is to spark a financial turnaround for the nation’s beleaguered real estate sector.
Banks are paying a pretty price for their efforts. Policymakers are leaning on banks of all stripes—from city commercial banks to state-owned giants such as ICBC and China Everbright Bank—to stimulate a market hard-hit by falling home prices and property developer losses since the Covid-19 pandemic.
Analysts predict real estate financing initiatives to yield uneven results across the banking sector. An industry outlook by Ping An Securities forecasts an overall net profit growth rate of only 1% for all listed banks in 2025.
Nearly 300 municipal governments are working with banks to revive unfinished development projects. New lending topped $400 billion as of November, according to China Banking and Insurance News. Nearly 4 million new units were expected nationwide by the end of 2024.
In Taiyuan, Everbright recently arranged a $30 million syndicated loan for an apartment complex. In Wuhan, bank loans revived two building projects that added some 500 units in November.
Meanwhile, banks are answering a central bank call to slash existing mortgage rates. The goal is to boost consumer confidence as a tailspin in home values since 2021 wiped out the main savings platform for Chinese families.
People’s Bank of China Governor Pan Gongsheng said the rate cuts would average 0.5 points and benefit 50 million households. Interest payments to banks nationwide were expected to fall by $20 billion annually. Pan said the impact would be cushioned by cuts in bank reserve requirements and savings deposits from homeowners enjoying lower payments.
Nationwide, the average rate was 3.6% for a long-term mortgage in November, down from 3.85% in September.
Many lenders offer refinancing to adjustable rates. Bank of China, for example, offers homeowners lower rates with mortgages subject to adjustment every three, six, or 12 months. In some cities, banks have cut rates for first-time homeowners. China Merchants Bank’s branch in Guangzhou, for example, reportedly slashed its rate to 2.85% in October.
