China Unlikely to See Real Estate Loan Rates Decline in 2021 as LPR Holds Steady for Ninth Month Straight


Domestic analysts say that Chinese banks are unlikely to significantly reduce rates for real estate loans in 2021, as regulators continue to maintain the stance that “houses are for occupation, not speculation” and the loan prime rate (LPR) remains unchanged for the ninth consecutive month in January.

The LPR’s is­sued by Chi­na’s Na­tional In­ter­bank Fund­ing Cen­ter (全国银行间同业拆借中心) on 20 January were 3.85% for the one year LPR and 4.65% for the five year LPR, marking the ninth consecutive month that the readings have remained unchanged.

General consensus amongst Chinese analysts is that real estate loan rates have bottomed out, and that there is little room for further reductions.

Xu Xiaole (许小乐), chief analyst with the Beike Research Institute, said that rates for medium-term lending facilities (MLF) have not yet changed, indicating that at present regulators believe that interest rate levels are basically on a sound footing vis-a-vis the overall Chinese economy, and there is no need for ongoing loosening of monetary policy.

“With expectations that the economy is beginning to stabilise and warm up again, there is an orderly withdrawal of counter-cyclical policy,” said Xu.

Wang Qing (王青), chief macro-analyst with Golden Credit Rating International, said that Beijing would likely take a “wait and see” approach to monetary policy given both the ongoing economic recovery in China in the first half and prevailing uncertainties abroad.

“The likelihood of MLF rate adjustments is very low, and the LPR are basically expected to remain stable,” said Wang.

Chinese policymakers have also continued to reiterate their stance that “housing is for occupation, not speculation” (房住不炒), including senior officials from the Chinese central bank and the Ministry of Housing and Urban-Rural Development.

“Under the real-estate finance prudential regulatory system, the central bank guides commercial banks in rational growth of real estate loans, and loosening of the credit environment for home purchases has ended,” said Xu Xiaole.

At the start of the year the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) launched a new “banking sector financial institution real estate loan concentration management system” (银行业金融机构房地产贷款集中度管理制度), which puts caps on the percentage of real estate loans that different types of lenders are permitted to make.