Benchmark for Real Estate Lending to Switch to Loan Prime Rate on 8 October: Chinese Central Bank

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The Chinese central bank has announced that the loan prime rate will serve as the benchmark for the pricing of personal residential property loans starting from early October.

On 25 August the People’s Bank of China (PBOC) announced that starting from 8 October the interest rates for new personal residential property loans will employ the loan prime rate (LPR) of corresponding maturities for the previous month as the benchmark for pricing.

According to PBOC the move is intended to “ensure the effective implementation of regionally differentiated residential property lending policies and maintain the basic stability of the interest rates for personal residential loans,” while also “firmly maintaining the position that houses are for occupation, not speculation.”

PBOC has stipulated that the rates for commercial personal residential property loans cannot be less than the LPR for the corresponding maturity (as of 20 August the five-year LPR is 4.85%), while for second commercial personal residential property loans the rate cannot be less than the LPR for the corresponding maturity plus 60 basis points.

The province-level branches of PBOC will also formulate their own LPR-based benchmarks for first and second commercial personal residential property loans based on the conditions of their local real estate markets.

PBOC vice-governor Liu Guoqiang (刘国强) recently said that the focus of market-based reforms of interest rates would be to reduce financing costs for the real economy, but that Chinese regulators firmly maintained the position that “housing is for occupation, not speculation,” and that real estate would not be employed as a means of “short-term economic stimulus.”

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