China's Hainan Province Eases Mortgage Rules To Revive Home Sales: 'Housing Bottom Not In Sight,' Analyst Says

China’s southern province of Hainan has announced a reduction in the down-payment ratio for first-time homebuyers.

This policy adjustment, making it easier for individuals to purchase their first homes, sets the minimum down payment at 20%, a decrease from the previous 25%.

The announcement, first revealed by Hainan Daily and then reported by Bloomberg, follows similar easing measures in major cities like Beijing and Shanghai, aiming to counteract the country’s significant housing sales slump.

Stabilizing the Market Amidst a Housing Downturn

The adjustment comes amid a series of relaxations in mortgage policies across the nation, aimed at boosting slumping home sales. These efforts have seen a notable increase in home sales in Beijing and Shanghai after the implementation of reduced down-payment ratios and the easing of qualifications for lower mortgages.

However, the overall real estate market in China continues to face challenges, with the new-home market experiencing subdued sales. This is contrasted by a surge in transactions of existing homes during the Spring Festival holiday, although daily average sales of new homes in 25 major cities have seen a significant decrease of 27% by area compared to the previous year.

This policy change in Hainan, which had previously reduced the down-payment requirement from 30% to 25% in October, underscores the ongoing efforts to address the unprecedented downturn in the housing market. With a population of 10 million, Hainan’s move is part of a wider strategy to inject vitality into the real estate sector and provide a pathway for recovery.

Goldman Sachs Weighs In: A Prolonged Housing Downturn

In a note published Sunday, Goldman Sachs’ chief China economist Hui Shan said that the Chinese housing bottom is still “not in sight.”

According to Shan, the current housing downturn in China, when compared to the U.S. 2007-09 subprime crisis, reveals that real house prices nationwide have declined by 16% from the third quarter of 2021 to the third quarter of 2023.

This decrease represents approximately half of the peak-to-trough decline experienced during the U.S. crisis. Despite the fundamental differences between the housing markets of the two countries, Shan emphasizes that housing downcycles tend to persist for years.

The economist underscores the importance of policy interventions to mitigate negative spillovers, such as foreclosures and financial stresses in the U.S., and developer defaults and local government spending cuts in China’s context.

On Monday, the Hong Kong’s Hang Seng Index, a barometer for offshore Chinese stocks and monitored through the iShares MSCI Hong Kong Index Fund EWH, fell over 1% after surging as much as 2.5% on Friday.

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