Central bank aims to boost housing market through biggest ever cut to key mortgage rate

The People’s Bank of China (PBoC) on Tuesday (20 February 2024) announced it would lower the five-year loan prime rate (LPR) from 4.20% to 3.95%. The 25bps reduction marked the largest cut to the LPR since its introduction in August 2019. The one-year LPR remained unchanged at 3.45%.
 
The larger-than-expected cut to the five-year LPR underlines the central government’s determination to support the residential sales market, which remains a key pillar of economic growth. The cut has reduced the lower limit of the mortgage loan rate for first-time home buyers to 3.75%, 20bps lower than the five-year LPR.
 
CBRE expects residential sales to stabilise and bottom out in H2 2024 as policy stimulus takes effect. However, with China’s population having peaked several years ago and now beginning to decline, a full recovery of residential sales volume to the previous peak is unlikely.
 
Despite the weak outlook for the residential sales market and heightened default risk among private developers, CBRE expects China’s continued urbanisation and upgrading to a more innovation-driven economy to benefit commercial real estate demand in tier I and tier II cities.