As of September 2023, several major Chinese cities including Beijing, Shanghai, Guangzhou, and Shenzhen have announced they will implement a new policy of “recognizing homes, not loans” (認房不認貸) for home buyers. This new policy, as translated into English, means that the mortgages policy of the second residential property of a buyer will be treated in the same way as a buyer’s first mortgage, as long as the buyer has paid off the first property’s loan.
Previously, the authorities and financial institutions of the cities in China would look at a homebuyer’s previous home loan history when determining if they qualified for certain benefits like lower initial down payment and interest rates on their next home purchase. If the buyer had ever purchased a residential property in the past, no matter it is still on loans, fully paid off or even being sold out, the buyer will need to pay for a higher percentage of initial down payment (usually 10-25% more, depending on the local municipal’s rules and regulations) and the bank will charge for a higher interest rate for the mortgage. Under the new policy, the authorities and financial institutions will only look at whether the homebuyer has owned property at the present moment. If the buyer has already fully paid off the first property’s mortgage or sold out the property, the buyer will be qualified to enjoy first-time home buyer benefits by a lower initial down payment and lower mortgage interest rate.
The change primarily benefits local residents that want to sell their current old, smaller, inferior home and buy for a newer, bigger and better one. For example, in the capital city of China, Beijing, a first-time / first-home buyers only need to pay for a 35% down payment while second-time / second-home buyer require to pay as high as 60%. For a RMB 7.3 million (USD 1 million), this could save a buyer RMB 1.58 million (USD 2.5 million) upfront.
Analysts say this “recognizing homes over loans” policy will stimulate property’s demand, especially for the market whom people wanted to improve their living conditions. This policy being announced in the above mentioned four major mega cities in China, as economists expect, will encourage other smaller cities to adopt the similar scheme. It is believed that the first-tier cities with the most expensive property markets probably will benefit the most from the increased purchasing power.
While this a good signal from the government to the buyers and sellers, some experts caution the “recognize homes” policy alone may be insufficient to restore full confidence amid broader economic uncertainties and difficulties. Nonetheless, the policy shift removes key barriers to home ownership mobility in China’s major urban centers.
The notice has come into effect at on 1st September 2023. For those who have completed the online signing of the contract of sale and purchase of properties before the date of the implementation, the personal housing credit policy will be implemented according to the original provisions.
Guangzhou is the first first-tier city in China to adopt the “home recognition and loan recognition” policy. Some analysts at then expected that other major cities will soon take a stand on the policy, and also believe that it will have a guiding significance for the remaining 10-odd second-tier cities that are still implementing the policy of “recognizing housing and loans”, and these cities are likely to follow suit. Now we know that the cities like Huizhou, Zhongshan, Jiangmen, Foshan, and Wuhan have also issued notices to implement the same policy of “recognizing housing and not recognizing loans”.
The analysis believes that the first-tier cities will benefit most from the “home loan recognition” policy, which can significantly reduce the down payment and interest rate costs for improving housing demand, and will bring stimulus to the property market in the short term. However, as the market has yet to regain confidence in privately-owned domestic real estate enterprises, it is estimated that purchasing power will focus on second-hand and state-owned enterprise projects.
