China Cut Interest Rates To Boost Property MarketThe government announced another round of interest cut on 10th May to boost real estate market and stimulate the stagnant economy. The benchmark one-year loan rate was cut by 0.25 percentage points to 5.1% and one-year benchmark deposit rate down by 0.25 percentage points to 2.25%. Not only does the measure boost property market demand from end-users and investors, developers are also regaining confidence in initiating investment into new projects under the financial easing.

China has already launched a series of simulative measures before this round of interest rate cut. The property market has shown signs of recovery. The total transaction amount of primary housing rose 16% y-o-y to RMB 485.4 billion in April. Average home price in China’s 100 major cities also dropped at a slower pace in April, down just 0.01% m-o-m. First-tier cities such as Beijing and Shenzhen saw an upward trend of housing price.

The announcement of interest rate cut has, without doubt, further heated up the market especially the first-tier cities. One week after the interest rate cut, the transaction of primary residential property in Beijing rose 39% compared with the previous week, up to 1,558 transactions. For Shanghai, transaction volume has surpassed 300,000 sqm per week. Average price also rose over RMB 30,000 sqm. Similar rebound could also be found in Guangzhou and Shenzhen property market. The weekly secondary residential transaction in Shenzhen even hit a four-year high and its primary transaction volume rose 41.9% compared with the previous week.

The interest rate cut also boosts the confidence of developers. Under the slowing economy and the high inventory, developers chose to slow down their pace of developing new projects. A 17% y-o-y drop of new property projects nationwide is expected in 2015. Land sales remained steady, with a 21% y-o-y decrease in revenue in the last quarter of 2014.

Developers also expressed their optimism towards the performance of property market in the coming quarters after the series of simulative measures. For inventory stock in Beijing, there has been a five-week drop, hitting a ten-month low, showing a healthy progress of offloading the unsold units. Authority has reduced the land supply and rezoned some of the sold sites for land use other than residential, such as turning them into recreational sites. Along with the newly issued interest rate cut lowering the purchasing cost, process of stock clearance is expected to speed up. Both the purchasing and investment market of real estate would see a recovery.