August 31, 2023: On Wednesday, the decision comes as some Chinese state-owned banks are expected to lower interest rates on existing mortgages, three sources familiar with the matter said, in the first such cut since the international financial crisis.

Beijing hopes the reduction in mortgage payments will help revive consumer demand for property. The sector had been a significant economic growth driver for years but is now dragging it down amid slowing home sales and a string of defaults by developers.

China’s mortgage loans totaled 38.6 trillion yuan at the end of June, meaning 17% of banks’ total loan books.

In a notice, the Guangzhou city government said mortgage curbs would be eased, allowing home buyers to enjoy preferential loans for first-home purchases regardless of their previous credit record.

The rest of China’s top four first-tier cities – Beijing, Shanghai, and Shenzhen – could follow suit with a dozen second-tier cities that have yet to ease. Many smaller cities have taken steps to make it easier to buy homes.

Hong Kong’s Hang Seng Mainland Property Index increased 3.3% after the announcement by the Guangzhou city government.

The property sector, which accounts for a quarter of the economy, has lurched from one crisis to another since 2021, and contagion fears deepened this month after liquidity stress in leading developer Country Garden became public.

Just how cash-strapped Country Garden is will be the priority when China’s largest private property developer reports its first-half results on Wednesday. Like its peers, the company has been hurt by a drop in margins as property sales and the value of the homes themselves plummeted as the economy slowed.