China Considers Major Mortgage Refinancing To Support Homeowners

China may let homeowners refinance up to $5.4 trillion in mortgages to reduce borrowing costs. This proposal could allow borrowers to renegotiate terms with lenders or switch banks. Market response has been positive, but analysts are cautious about its impact on the property sector and overall economy.

China is considering allowing homeowners to refinance as much as $5.4 trillion in mortgages, aiming to reduce their borrowing costs, Bloomberg News reported on Friday, citing people familiar with the matter.

Homeowners would be able to negotiate terms with their current lenders or refinance with another bank for the first time since the global financial crisis, starting from January. The news had an immediate market impact; Hong Kong's Hang Seng Mainland Property Index surged 4.2%, with heavyweights China Vanke and Shimao Group jumping 9.9% and 10.5%, respectively, while the CSI 300 Real Estate index in mainland China firmed 5.3%.

The Chinese government has been focusing on stabilizing the property sector, which once contributed to a quarter of the economy. Despite efforts to lower mortgage rates and reduce home buying costs, prices continue to drop, hitting a nine-year low in July. Analysts suggest that even with additional measures, Beijing's 5% GDP growth target for 2024 could be challenging.

Friday's report has sparked expectations for further government support. Raymond Cheng, head of China research at CGS International Securities HK, mentioned that the plan signals increased governmental efforts to protect household wealth and stimulate consumption, although caution remains regarding the property sector. Morningstar equity analyst Jeff Zhang noted that the refinancing would apply only to existing homes, possibly preventing early mortgage repayments and redirecting savings towards other consumption.