PBOC and CBRC jointly announced overnight a set of regulations tightening lending policies for home buyers and developers. The highlights are: (1) min mortgage down payment ratio will be raised to 40% from 30% for second homes; (2) min mortgage rates will be increased by 10% from benchmark lending rates (e.g., for 5-10yr mortgage rates, it's raised by 78bps to 8.61% from 7.83%) for second homes; (3) down payment ratios and mortgage rates should be raised further for borrowers buying more than two homes; (4) borrower's monthly mortgage payment should not exceed 50% of the monthly income;
(5) for commercial properties, min down payment ratio is raised to 50% from 40%, and min lending rates are also raised by 10% from benchmark rates; (6) banks are not allowed to offer mortgage loans to buy units in projects that have not yet completed superstructure (e.g., ceilings of the buildings); (7) technical arrangements (database/information sharing etc) are made to ensure second home buyers can be effectively identified by banks (even if a family has borrowed from other banks before); (8) banks are not allowed to issue loans to developers that stock up land bank.
Among these, items (1), (2), (3), (5), (7) are broadly in line with our expectations. Item (6) should be a surprise to the market; it will likely delay sales and increase working capital costs of many developers especially those in second-tier cities. Items (4) and (8) also suggest that the government is more determined to address property inflation and associated credit risks than what the market has expected. We think overall the policy package is a bit more aggressive than market expectations. This policy set, together with possible further measures such as pilot program of a property tax and tighter mortgage quotas, should continue to pose short-term downside risks to share prices of developers.
Deutsche Bank - Equity Research
