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<Research>CLSA Doubts Effectiveness of Reported MOHURD's Nationwide Mortgage Subsidies Boosting Home Mkt
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China's Ministry of Housing and Urban-Rural Development (MOHURD) is purportedly weighing a series of measures to bolster the housing market, including implementing nationwide first-time homebuyer mortgage subsidies, increasing income tax rebates for mortgage borrowers, and reducing housing transaction costs. A research report by CLSA expressed view conforming with the Chinese authorities' policy direction to boost the housing market, while questioning the specific effectiveness of such measures. The fact that these measures have been discussed in the market for some time but have not yet been officially confirmed suggested that the authorities may also cast doubts on their cost-effectiveness. CLSA estimated that the current gross rental yield for residential properties in China is around 2.1%, and the net yield is about 1.5%, still far below the 3% mortgage interest rate. Therefore, it believed that short-term or small-scale subsidies have limited appeal. If calculated based on the assumption of a 50% loan-to-value ratio and a 1% mortgage interest rate subsidy over 30 years, with annual residential sales of RMB8 trillion, CLSA estimated that the government would need to bear about RMB40 billion annually, accumulating to RMB1.2 trillion over 30 years. This cost is way beyond directly buying back existing housing inventory or implementing a 2.0 shantytown redevelopment. AAStocks Financial News |
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