Event:
The People’s Bank of China announced on Oct 22 that it will increase the lower limit of the commercial personal residential mortgage loan rate to 0.7 times of the benchmark loan rate and adjust minimum payment proportion to 20% since Oct 27, 2008. At the same time, the central government declared to cut personal housing accumulation fund loan rate by 0.27ppt in each loan stage. Besides, lower limit of loan rate, minimum down payment proportion and favorable policies of housing accumulation fund loan rate in purchasing private-dwelling house stay unchanged in Wenchuan, the earthquake disaster area.
The Ministry of Finance announced to lower property purchase tax to 1 percent for people buying the first house of 90 sq.m or below and stop levying stamp tax and land appreciation tax temporarily; in addition, local governments are allowed to establish policies to reduce or exempt taxes in order to stimulate the housing consumption. The package policy will be effective since Nov 1.
Our analysis and estimation:
The Finance Ministry and the Central Bank jointly release the policy aimed at stimulating demand in real estate industry so as to shore up the sharp shrink of transaction volume, which will help warm the industry.
1) This policy shows the government’s attitude in establishing a steady and healthy real estate industry; meanwhile, the central government encourages locals to roll out other policies to reduce or exempt taxes, which will help stabilize morale of potential house buyers.
2) Strengthening package policy is issued in view of the current market. Lower limit of the commercial personal residential mortgage loan rate was adjusted to 0.7 times of the benchmark loan rate; additionally, favorable rate has fallen back to the level of 2005, with 5.23% for loans of over five years. Down rates and tax cuts effectively reduce the purchasing cost and lowered minimum payment proportion bolsters purchasing power as well, which will fundamentally help boost residential consumption demand.
3) The policy further stimulates self-used demand for small-medium sized dwelling houses. According to the Central Bank, for citizens purchasing common private-dwelling houses initially or for improvement, financial institution should provide favorable terms in loan rates and minimum payment proportion; for other non-self-used houses and uncommon dwelling houses, thresholds should be boosted properly.
Investment suggestion:
The new package policy indicates a signal to stabilize morale in real estate market by government on one hand; on the other, rates reduction, lower minimum payment proportion and tax reduction or exemption effectively decrease purchasing cost and boost purchasing power. However, we believe the transaction volume needs a period of time to recover considering lagged effects of policy. Maintain “Cautious” rating for real estate. Portfolios: China Vanke (000002) and Poly Real Estate Group (600048).