The fiercest rate cut in history! How much can the monthly payment save？ Have you bought a house or sold a house by then？
"This time, it has been lowered by 25 basis points at one time, which is the fiercest rate cut in history."
Reporter Wang Yinhao
The loan market quoted interest rate (LPR) has dropped!
On February 20th, the People’s Bank of China authorized the National Interbank Funding Center to announce that the one-year LPR was 3.45%, which remained unchanged. The LPR over five years was 3.95%, 25 basis points lower than the previous value. On the whole, this downward adjustment has exceeded the market expectation, which is the largest single historical decrease of LPR over five years. There are eight downward adjustments of LPR over five years in China, but in the past, the downward adjustment was generally 5-15 basis points. This also means that the biggest interest rate cut cycle in history has started.
Interest rate cuts have a positive impact on the real estate market. LPR of more than five years is the pricing "anchor" of most individual housing loan interest rates. The downward adjustment of LPR for more than five years means that the monthly supply of personal housing mortgage will also drop. In the eyes of the industry, in view of the potential demand and policy factors, the real estate market sales are expected to gradually pick up, and the possibility of "Xiaoyangchun" in the property market has increased significantly. Property buyers with rigid demand can choose while watching, while consumers with replacement demand need to remember the iron law of selling before buying.
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Exceeding expectations to cut interest rates
On February 20th, the People’s Bank of China authorized the National Interbank Funding Center to announce that the one-year LPR was 3.45%, which remained unchanged. The LPR over five years was 3.95%, 25 basis points lower than the previous value.
Since the LPR reform in 2019, LPR has become the pricing benchmark for commercial bank loans in China. Among them, LPR with a term of more than 5 years is the pricing "anchor" of most individual housing loan interest rates. The downward adjustment of LPR for more than five years means that the monthly supply of personal housing mortgage will also drop.
Yan Yuejin, research director of Yiju Research Institute, said that in terms of historical adjustment, there were eight downward adjustments of five-year LPR in China, but in the past, the downward adjustments were generally carried out at 5-15 basis points. This time, it was reduced by 25 basis points at one time, which is the most drastic rate cut in history. In other words, the biggest interest rate cut cycle in history has started.
According to a simple calculation, if the loan principal is 1 million yuan and the principal and interest are repaid in 30 years, the monthly mortgage payment of the buyers can be reduced by about 54,000 yuan after the interest rate cut, and the loan interest for 30 years can be saved in total. It is a relatively large burden reduction, which will help to further promote mortgage application and consumption. It also plays a positive role in the active follow-up housing market.
Chang Yang, chief analyst of the policy team of Zhongtai Securities Research Institute, said that since the correlation between the five-year LPR and the real estate market is relatively strong, from the early stage, lowering the five-year LPR interest rate is also a part of the combination of demand-side policies in the real estate market. At this stage, the five-year LPR interest rate is greatly reduced by 25 BP, combined with the recent intensive introduction of more policy measures around the real estate market, which fully reflects the policy intention of interest rate policy to participate in activating the real estate market and promoting a virtuous circle of the real estate market.
The central bank cut interest rates and superimposed first-tier cities to successively optimize the purchase restriction policy, which released a positive signal. In view of the potential demand and policy factors, the real estate market sales are expected to pick up gradually. The market view generally believes that this year’s "Xiaoyangchun" property market is a high probability event.
Zhang Dawei, chief analyst of Zhongyuan Real Estate, believes that in recent months, first-and second-tier hotspot cities have joined the ranks of relaxed purchase restrictions, releasing some new purchasing power. From the market as a whole, with the emergence of the bottom of the policy, the bottom of the market transaction has gradually begun to approach. "Although the transaction volume in February 2024 was much lower than that in January due to the holiday, it is expected that the market will stabilize and rebound after March-April, and the possibility of’ Xiaoyangchun’ will increase significantly in March." Zhang Dawei said.
Chen Wenjing, director of market research of the Central Finger Research Institute, pointed out that after the holiday, residents’ work and home purchase are gradually on the right track, and the effect of policies is expected to be further manifested in cities such as the first-line and core second-line cities that introduced policies in the early stage. In the short term, the core first-and second-tier cities are still expected to continue to optimize the demand-side policies, overlap the "three major projects" to accelerate the decline, and strengthen the financial support of enterprises. The policy efforts at both ends of supply and demand are expected to promote the gradual stabilization of the real estate market.
Beware of regional differentiation
In 2023, the real estate market said the most: policy and confidence. The confidence of buyers is insufficient, and the real estate market is gradually showing a weak trend. In order to stabilize the market and boost confidence, the release of policies has increased, but it has also caused persistent anxiety in the market. Judging from the effect of policy implementation, there is a lack of continuity.
Zhang Dawei said that in January, there were 12,444 sets of second-hand housing in Beijing, the transaction volume was slightly lower than that of 12,963 sets in December 2023, and the market has remained at around 12,000 sets for three consecutive months, so the policy impact in December has basically passed. After the December 14th policy, the market as a whole only rose by 20% compared with October.
Judging from the market trend, the basic line of the hot second-hand housing in Beijing is 15,000 sets of second-hand housing in a single month, but the market promotion mainly depends on the demand of school districts, and the demand will decline after April. In 2023, "Xiaoyangchun" was largely the release of the demand for school districts and the previous backlog.
"Unlike the backlog demand brought by the epidemic in 2023, there is uncertainty in the release of the backlog demand of’ Xiaoyangchun’ in 2024." Yan Yuejin said that in 2023, driven by policies, some of the backlog needs have been released. From the market situation, there is a lack of relevant conditions in 2024, which is also a key factor affecting the strength of Xiaoyangchun. At the same time, based on the high base in 2023, the performance of "Xiaoyangchun" will be relatively weak in 2024, which will also affect the market sentiment throughout the year to some extent.
Li Yujia, chief researcher of the Housing Policy Research Center of Guangdong Urban Planning Institute, pointed out that even if "Xiaoyangchun" has exceeded expectations, it is difficult to form a unified "Xiaoyangchun" phenomenon. At present, not only the "vertical" differentiation between cities, but also the "horizontal" differentiation between regions has entered a deepening stage.
This situation is also manifested in the land acquisition of real estate enterprises. In the recent local auction market in Beijing, lots with good locations basically rely on lottery numbers, while lots with poor locations are mostly sold at reserve prices. On December 26, 2023, Fengtai Dahongmen plot was favored by 22 real estate enterprises, and 17 real estate enterprises participated in the on-site auction. Finally, China Resources Land won the lottery for 3.484 billion yuan, with a premium rate of 15%. The Daxing Linkong 6037 plot sold on the same day was sold by Zhongjian Technology+Daxing Xinhangcheng at a reserve price of 450 million yuan.
Li Xin, the head of a central enterprise’s project marketing in Beijing, told beijing business today that in 2024, the company’s land acquisition strategy will still focus on "core", focusing not only on first-tier core cities such as Beijing, but also on high-quality plots in Chaoyang, Fengtai and Daxing. Li Xin said that if the market wants to achieve substantial repair, it still needs a gradual process.
Buy or sell?
After the Spring Festival, the "Golden Three" is coming, and buyers are also regaining their confidence while watching. The market is still warm and cold. Does "Xiaoyangchun" usher in a good opportunity for buyers?
In view of the many uncertainties in the "Xiaoyangchun" market, for consumers who are not yet eager to buy a house, maintaining a concern situation is the dominant strategy. If the "Xiaoyangchun" phenomenon in March fails to appear as scheduled, it indicates that the real estate market will tend to be dull throughout the year without major policies. Consumers who are not in a hurry to buy a house can choose to postpone buying a house in order to exchange time for more bargaining space.
At the same time, property buyers should also pay close attention to the developer’s "profit-making" measures and the changes in housing inventory. The reporter learned that at present, major developers in Beijing are actively preparing for "Xiaoyangchun", with sufficient supply and great discounts.
In January, 2024, the inventory of newly-built commercial housing in 100 cities nationwide was 502.55 million square meters, down 0.5% from the previous month and 4.2% from the same period last year. On the basis of 50 consecutive months of positive year-on-year growth, the inventory scale of 100 cities in China has been declining for 12 consecutive months, which also means that the inventory trend has the following main characteristics since 2023. Downward inventory also helps to alleviate the problem of excessive housing objectively, which makes some housing become more tight in the follow-up sales market.
For homeowners, "Xiaoyangchun" will bring great benefits. Under the principle of "selling houses in hot market and buying houses in cold market", replacement buyers need to implement the principle of selling before buying. Previously, the replacement customer group adopted the strategy of selling and buying, and the suitable housing can be negotiated first, with a cycle of about half a year. In half a year, as long as there are no major problems in the housing, it is easier to sell. However, in the current market environment, buying first may lead to the risk that the house is difficult to sell or the price of its own house is greatly reduced, which leads to difficulties in trading.
In Yan Yuejin’s view, regardless of the arrival of "Xiaoyangchun", the property market in March has certain advantages compared with other time periods of the year. Consumers can consider buying and selling at this time, or they can choose to make a move after more new policies are released. It can be seen that when the effect is less than expected, the policy will be further relaxed.
Editor Wang Naixin
Pictures: beijing business today and vision china.
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