PBOC Takes Measures to Stabilize the Housing Market, Launching Three Initiatives: RRR Cuts, Interest Rate Cuts, and Reducing the Interest Rate of Housing Provident Fund

The central bank announced today three major measures: RRR cuts, interest rate cuts, and a reduction in the housing provident fund interest rate, bringing significant credit policy support to the real estate market.

On May 7, Pan Gongsheng, Governor of the People's Bank of China (PBOC), stated at a press conference of the State Council Information Office that the reserve requirement ratio (RRR) would be lowered by 0.5 percentage points, expected to provide approximately 1 trillion yuan in long-term liquidity to the market. The policy interest rate would be reduced by 0.1 percentage points, meaning the 7-day reverse repo operations rate in the open market would be lowered from the current 1.5% to 1.4%, which is expected to drive the Loan Prime Rate (LPR) to decline by approximately 0.1 percentage points in tandem.

Meanwhile, Pan Gongsheng also announced a reduction of 0.25 percentage points in the interest rate for individual housing provident fund loans. The interest rate for first-time homebuyers with loans exceeding five years would decrease from 2.85% to 2.6%, with rates for other loan tenures adjusted accordingly.

"The magnitude of this interest rate cut and RRR reduction is substantial, offering immediate benefits to homebuyers. Both new and existing home loans will enjoy lower mortgage costs," Yang Fan, a real estate analyst at Zheshang Securities, told reporters.

He further stated that for developers, high-quality central and state-owned enterprises, due to their good credit standing, could enjoy lower financing interest rates, while other real estate firms would need to assess their own creditworthiness. Overall, the easing of liquidity conditions would provide strong support for stabilizing and repairing the fundamentals of the real estate sector. It can thus be expected that with continued policy support this year, the fundamentals of the real estate sector will gradually improve from point to area.

Lian Ping, President and Chief Economist of Guangkai Chief Industry Research Institute, believes that the current policy measures are relatively moderate. Once the US Fed clearly restarts the interest rate cut process, there will be more room for policy adjustments, and relevant interest rates could be further reduced.

Housing Provident Fund Interest Rate Falls to Historical Low

Following a 25 basis point reduction in the housing provident fund interest rate, the interest rate for first-time homebuyers with loans exceeding five years has dropped to 2.6%, reaching a historical low.

Assuming a housing provident fund loan amount of 1 million yuan, a 30-year loan term, and equal principal and interest repayment, the monthly mortgage payment would decrease by approximately 132 yuan after the interest rate reduction, resulting in a total reduction of 47,600 yuan over 30 years.

"Against the backdrop of continuously declining commercial loan interest rates, the targeted adjustment of the housing provident fund interest rate highlights the tiered policy design. The PBOC's reduction in the interest rate for individual housing provident fund loans this time is another targeted adjustment following 2024, sending a clear policy signal to stabilize the real estate market," Zhang Bo, President of 58 Anjuke Research Institute, told reporters.

Several analysts believe that this interest rate cut has further widened the interest rate spread between housing provident fund loans and commercial loans, to a certain extent strengthening the inclusiveness of the housing provident fund system and offering greater benefits to first-time homebuyers.

"Previously, the interest rate for commercial housing loans was 3%, while the interest rate for housing provident fund loans was 2.85%, with a minimal gap between the two. Coupled with the limit on the amount of housing provident fund loans, this affected homebuyers' enthusiasm for using housing provident fund loans. This time, the interest rate for commercial housing loans was not directly reduced, while the interest rate for housing provident fund loans was lowered by 25 basis points, thereby widening the gap between the two. Currently, the gap stands at 40 basis points. Combined with the increase in the loan amount for housing provident funds in various regions, this will help improve the utilization efficiency of housing provident fund loans and better leverage their cost-reducing effects," said Li Yujia, Chief Researcher at the Guangdong Provincial Housing Policy Research Center.

Additionally, some homebuyers have raised detailed questions, such as whether the interest rates for existing housing provident fund loans, which were previously taken out, will also decrease accordingly.

In response, Yan Yuejin, Deputy President of the E-House China R&D Institute, believes that based on past practices in financial policy operations, this policy mainly refers to the interest rates for new housing provident fund loans. "For homebuyers who have already taken out housing provident fund loans, it is expected that the interest rates will be adjusted accordingly in the future, in line with existing policies."

What impact will RRR cuts and interest rate cuts have on real estate enterprises?

The press conference also clarified that the RRR will be cut by 0.5 percentage points and the policy interest rate will be lowered by 0.1 percentage points. It is estimated that approximately 1 trillion yuan of long-term liquidity will be provided to the market.

"The RRR cut will increase the lendable funds of banks, which will have a significant impact on the functioning of commercial banks' credit business," said Yan Yuejin. He noted that real estate-related lending business remains a key area of focus for commercial banks' lending this year, and this move will enhance banks' roles in personal mortgage loans, development loans, financing coordination mechanisms, urban village renovation, and existing home sales.

At the same time, he believes that there is still room for further relaxation of personal mortgage loan policies. "This year is considered the most lenient year for mortgage policies in history, with low down payment thresholds, low mortgage interest rates, and sufficient mortgage quotas. Combined with measures such as the current interest rate cut for housing provident funds, there is ample momentum for 'financial support for home purchase consumption,' creating favorable conditions for promoting housing consumption."

It is worth noting that the interest rate for 7-day reverse repo operations in the open market has been lowered from the current 1.5% to 1.4%, which is expected to drive a synchronous decline of approximately 0.1 percentage points in the Loan Prime Rate (LPR).

Chen Wenjing, Director of Policy Research at the China Index Academy, stated that the LPR for loans with a term of over five years is expected to be lowered by 10 basis points synchronously this month, possibly from 3.6% to 3.5%, which will further reduce the home purchase costs for homebuyers.

According to data from the People's Bank of China, the weighted average interest rate on newly issued commercial personal housing loans nationwide was 3.11% in Q1 2025. Yan Yuejin stated that if the current policy is implemented, subsequent mortgage interest rates are expected to fall to 3.01%.

"The timely implementation of RRR cuts and interest rate cuts will significantly boost market confidence. Interest rates on commercial housing loans and housing provident fund loans for residents will both be lowered, helping to further alleviate the pressure on residents to purchase homes and forming a substantial positive impact on promoting the release of housing demand. Meanwhile, corporate financing costs will also continue to pull back, which will have a positive impact on improving corporate liquidity," Chen Wenjing opined.

More property market policies are expected to be introduced

At the press conference, Li Yunze, Director of the National Financial Regulatory Administration, pointed out that eight incremental policies will be launched in the near future, explicitly proposing for the real estate sector to "accelerate the introduction of a series of financing systems compatible with the new model of real estate development to help sustain and consolidate the stable trend of the real estate market."

Specific measures include "loan management regulations for real estate development, personal housing, and urban renewal, guiding financial institutions to continue maintaining stable real estate financing, effectively meeting rigid and improved housing demands, and strengthening the supply of funds for high-grade housing."

"The introduction of a series of financing systems compatible with the new model of real estate development will help real estate enterprises accelerate the resolution of debt issues and digest existing assets, and will also create favorable conditions for a new round of market development," Yan Yuejin stated. Works such as urban village renovation and the acquisition and storage of existing land may receive stronger financial support, which will help revitalize the existing market.

In Chen Wenjing's view, more supporting policies will be implemented in the future, and the loan support for enterprises and individuals will continue to increase. Currently, the "whitelist" loans approved by commercial banks have increased to RMB 6.7 trillion, supporting the construction and delivery of over 16 million residential units. It is expected that the "whitelist" policy for project financing will continue to be improved in the future, promoting the substantial allocation of funds, improving corporate liquidity, and playing a greater role in sustaining and consolidating the stable trend of the real estate market.

Meanwhile, the meeting also emphasized the need to "strengthen the supply of funds for high-grade housing."

In this regard, some analysts believe that the 4.25 Political Bureau meeting clearly stated the need to "increase the supply of high-grade housing." This emphasis on strengthening financial support in this area suggests that regulators will, on the one hand, increase financial support for enterprises to boost the supply of high-grade housing; on the other hand, financial incentives matching the demand for high-grade housing will also gradually be implemented, with both supply and demand sides working together to promote the release of improved housing demand.

"This meeting has released significant positive news. The scope and intensity of the policy measures have exceeded expectations, and it is expected to play a positive role in boosting confidence in the real estate market and stabilizing market expectations. In the short term, in addition to RRR cuts and interest rate cuts, more supporting policies for funding support mentioned in this meeting will also be gradually implemented, promoting the release of housing demand, alleviating the financial pressure on enterprises, and continuously consolidating the stable trend of the real estate market," said Chen Wenjing.