China is exploring a fresh set of measures to revive its struggling property market, raising concerns about the broader stability of the country’s financial system, Bloomberg reported, citing people familiar with the matter. Policymakers, including the Ministry of Housing and Urban-Rural Development, are reportedly considering nationwide mortgage subsidies for first-time homebuyers, higher income tax rebates for mortgage holders, and reduced transaction costs for home purchases. The discussions, which have been ongoing since at least the third quarter, have yet to yield concrete policy decisions.
The country’s housing market has been in a prolonged slump for four years, affecting household wealth, consumer spending, and employment. While previous government interventions provided temporary relief, home sales have continued to decline since the second quarter, and fixed-asset investment plunged last month. Fitch Ratings analysts warned that worsening household repayment capacity could erode banks’ asset quality, noting that Chinese banks’ bad loans hit a record 3.5 trillion yuan ($492 billion) at the end of September.
The proposed mortgage subsidies aim to entice hesitant buyers back into a market plagued by falling prices. Despite the average mortgage rate for first-time homebuyers in 42 major cities hovering at 3.06%, little demand has been generated, Bloomberg noted. Earlier stimulus measures, such as easing purchase restrictions in Beijing, Shanghai, and Shenzhen, failed to stop both new and resale home prices from registering their sharpest declines in over a year.
Consumers remain cautious, continuing to deleverage amid soft income expectations and broader economic uncertainty. Residential mortgages shrank in the second and third quarters to 37.4 trillion yuan, down 3.9% from their peak in early 2023. Bloomberg Intelligence analysts highlighted that hundreds of billions of yuan in mortgages are likely in negative equity, further suppressing buyer confidence and threatening property developers’ inventory values as well as bondholder recovery prospects.
Previous policy efforts, including the removal of a nationwide mortgage rate floor last year, have been constrained by declining bank profitability. Commercial banks’ net interest margin fell to 1.42% by September, below the 1.8% threshold needed to sustain reasonable earnings for over two years. The outcome of the new stimulus discussions remains uncertain, as policymakers weigh measures to prevent a deeper housing market crisis.
