Second-home Buyers Qualify For Cheaper MortgagesAverage home prices in a hundred cities fell in September for the fifth month in a row to RMB 10,672 per square metre due to property developers’ aggressive price cutting. Although the recent mortgage restrictions were loosened by China’s central government, the downtrend in the real estate market could be difficult to reverse.

The easing of mortgage restrictions are expected to have significant impact on first, second, or even third home buyers, since second-home buyers can now be considered as first-time buyers and make down payments of just 30%. Previously, such home buyers would either not qualify for a housing loan or would have to make a minimum of 60% down payment. Banks can also offer as much as a 30% discount on benchmark rates for mortgages. However, to qualify for such a housing loan, the home buyers would have to first pay off their first-home mortgage debt. As a result, the new policy can ease some pent-up demand from upgraders, stimulate a higher investment demand and alleviate some recent pressure in the Chinese real estate market.

Implications of the new home loan policy will very much depend on the execution capability of banks, alongside individual situations in each city. Although a number of banks have indicated their interest towards the new policy, they are likely to face difficulty in offering 30% discount in mortgage interest rates, given the current higher market cost of capital resulting from the increased difficulty for banks to source deposits. Developers are likely to continue implementing an asset turnover strategy in their home sales in the fourth quarter on the back of surging capital costs.