China subsidizes first-home mortgage interest by 1 point for a year from October

China began subsidizing mortgage interest for first-time homebuyers by 1 percentage point a year from public funds on Oct. 1. The Ministry of Finance, the People's Bank of China (PBOC) and the National Financial Regulatory Administration announced the scheme on Sept. 29, and the PBOC cut a policy lending rate and raised relending quotas the same day. The measures follow a slowdown in second-quarter growth to 4.3%.

By FOCUS BUSINESS editorial staff

Who qualifies and how much

The subsidy applies to new commercial mortgages taken out by households buying their first home; refinancing existing loans does not count. The home must be no larger than 120 square meters and cost no more than 1.5 million yuan. The subsidy is 1 percentage point a year on up to 1 million yuan of loans per household, for up to five years. The scheme runs for one year for now.

No application is needed: lenders deduct the subsidy from monthly interest payments. The central government covers 90% of the cost and local governments 10%. A household borrowing 1 million yuan would save up to about 10,000 yuan in interest in the first year.

Policy rate cut and more relending

The PBOC lowered the one-year Pledged Supplementary Lending (PSL) rate by 0.25 point, from 1.75% to 1.5%. It also added six areas eligible for PSL support: water networks, new-type power grids, computing networks, next-generation communications networks, urban underground pipelines and logistics networks.

The relending quota for sci-tech innovation and technology upgrading rose from 1.2 trillion yuan to 1.4 trillion yuan, and the quota for agriculture and small-business relending and rediscounting from 4.35 trillion yuan to 4.85 trillion yuan. Within that, relending for private enterprises rose by 300 billion yuan to 1.3 trillion yuan.

Background: slowing growth

According to the National Bureau of Statistics, GDP grew 4.3% year on year in the second quarter, down from 5.0% in the first. This year's growth target is 4.5% to 5%. At an executive meeting on Sept. 28, the State Council said it would make use of unused local government debt quotas and study measures to stabilize the property market.

How much of the unused quota will be deployed has not been officially announced. Chinese media expect around 500 billion yuan, based on past practice. After the announcement, some market participants judged the impact likely to be limited.

Business Checkpoints

The subsidy is narrow: it covers only first homes that are small to mid-sized and modestly priced, and it lasts one year. Even if home sales pick up, it will take time to feed through to demand for appliances, furniture and interiors, so firms selling into the domestic market should wait for actual transaction data through year-end before drawing conclusions.

Infrastructure deserves more attention. With power grids, communications, computing and underground pipelines added to PSL support, suppliers of related equipment, parts and materials should follow local government project tenders. Larger relending quotas for private and small firms may ease cash pressure on smaller local partners, but foreign-invested companies should check with their banks whether they benefit directly.

※ This article is based on releases from China's Ministry of Finance, People's Bank of China, National Financial Regulatory Administration and State Council, and Korean and international media reports.