China's big 4 banks finally allowed to relax rules for "first-home purchase"

In hopes of boosting home loans.

It has been reported by Chinese-language Shanghai Securities News recently that the big four banks– Bank of China, Industrial Bank of China, China Construction Bank and Agriculture Bank of China–may be allowed to relax the standard for “first-home purchase” to boost demand for home loans.

According to a research note from Nomura, in the past, the definition of “first-home purchase” has been strictly limited to first-time mortgage borrowers, but it now may be loosened to include households who currently have no outstanding mortgage (i.e., it will include those who borrowed before but have repaid their mortgage), according to the report.

These measures have not yet been officially announced by the banks, but some local governments (e.g. Fuzhou City) did announce this change yesterday.

Here's more from Nomura:

If this is true, it constitutes a clear credit easing measure for the property sector. In the majority of China's cities, the first-time home purchasers enjoys a 70% loan-to-value (LTV) ratio and relatively cheaper mortgage, while the 30% LTV ratio and a higher mortgage rate applies to the second-home purchase.

As such, a relaxation in the first-time home purchase standard would allow more households to borrow and take advantage of mortgages at cheaper rates.

This is positive for housing demand in the short term, especially in top-tier cities (i.e. Beijing, Shanghai, Shenzen, and Guangzhou), and may help moderate the housing market correction.

While this policy easing measure is aimed directly at the property market and may boost market sentiment in the short term, we doubt that it will end the property market correction, given the severity of the oversupply problem and especially in the large number of tier 3 and 4 cities.

While this measure may lift the demand for property, it is quite likely that property investment would also rise, as, historically, these two series tend to move in tandem, which means that, despite any near-term improvement in sentiment, the oversupply problem will would loom and the correction would merely bemore drawn out.

We reiterate that property overinvestment is the top risk to China’s economy. We continue to expect the government to step up policy easing (e.g., one 50bp RRR cut per quarter from Q4 2014 to Q4 2015) to offset the impact of property market correction, in addition to further piecemeal, targeted easing measures.

We maintain our growth forecast of 7.2% for Q3, acknowledging downside risks, and 7.6% for Q4.