(ii) new lpr mechanism
1. Changes in the new lpr mechanism
In august 2019, on the basis of the problems of the old lpr and the current financial market environment, the people's bank decided to adjust the lpr formation mechanism. The new lpr is formed by 18 stock banks, agribusinesses, foreign banks and private banks that enter the stock market on 20 days per month (on holidays) and take a step of 0. 05 percentage points, submit offers to the national interbank interbank loan centre, and the national interbank interbank loan centre calculates the lpr at the highest and lowest quoted average of 0. 05 per cent of the total number of totals. The quote line is based on the mlf reference for the implementation rate of one-year and five-year loans for the highest-quality clients。
The change in the old and new mechanisms is mainly based on four aspects: first, the quotations are based on the medium-term loan facility (mlf) rate; second, the loan interest rate takes into account the length of the loan period, increasing the five-year loan rate offer; third, the scope and data of the offer subject matter are increased by 2 from the original 10 national banks to 18 each; and fourth, the offer frequency is changed from the original daily to a monthly offer。
Role of the new lpr mechanism
The new lpr mechanism facilitates central bank ownership of monetary policy. The central bank can reduce the lpr interest rate by directing the mlf interest rate down, with the main objective of matching financial supply-side reforms, reducing business costs, increasing business dynamism, improving business operations, and promoting the goal of inclusive finance. The impact of the new lpr on smes and the incentive industry is less evident than in national regulatory industries。
Ii. Impact of the lpr mechanism on the real estate market
(i) real estate market patterns
The real estate market is characterized by a short-term view of monetary supply, a medium-term view of land supply and a long-term view of population movements. In the short term, monetary policy will have a beneficial impact on the real estate market by improving the demand side of the market and creating an effective demand shock; in the medium term, land supply will be matched with the financial policies of real estate enterprises, resulting in supply adjustments that will affect real estate prices and trends; and there will be a long-term return to market balance considerations that will judge overall market demand and supply through population migration。
(ii) impact of the new lpr on the real estate market
The impact of the new lpr on the real estate market is generally understood to be more institutional than actual short-term effects。
1. Market demand side analysis
At the request of the people's bank, the interest rate on housing loans is to be converted to a five-year lpr. Previously, the lpr offer lacked elasticity due to a “linked” to the base rate for a one-year loan and resulted in a cross-barrel of 4. 31 per cent for up to 16 months. While market interest rates will react accordingly in the light of the changing economic situation, this reaction is not evident in the market for housing loan rates, and the demand side of real estate shows developments that are independent of the adjustment of market interest rates. In such cases, greater reliance is placed on influencing real estate market expectations, such as industry regulation, supply control, and administrative intervention. There is insufficient sensitivity and flexibility in the real estate market to the interest rate market, the flexibility of the real estate market to the interest rate market under the new lpr mechanism, the increased sensitivity of the real estate market, and the matching of the interest rate maturity structure, so that there is gradually greater scope for adjustment and differentiation in future housing loan rates. In the short term, the new lpr mechanism will not affect the adjustment of real estate policy, so there is a downward trend in the one-year lpr period, but the five-year lpr has not decreased, and it is also an insistence on the coherence of real estate policy. Taking into account the stringent real estate policy, it is not excluded that some banks may raise the interest rate on housing credit at the time of the change in interest rate on housing loans on 8 october. In general, the impact of the new mechanisms on short-term demand for real estate markets has been weaker, with the housing market dominated by regulatory policy decisions in the short term, with some positive effects on long-term demand, leading to the marketization of interest rates, helping the real estate market to become closely linked to the asset market, promoting stable and orderly development of the real estate market and reducing the expected dependence on single government intervention。
Analysis from the real estate supply side
Real estate enterprises are more clearly affected by national macroeconomic policies, including land supply, financial policies, etc. Under current conditions, real estate enterprises are subject to regulation, and the state insists on stable and orderly development of the housing market, curbing excessive mobility to real estate and promoting a virtuous circle of finance and real estate. The general policy effects of the people's bank have gradually become apparent over the past few years, and the orientation of real estate regulation and real estate finance policy will not change. Thus, there has been no change in the state's policy towards real estate enterprises with regard to the availability and price of credit. Moreover, due to market expectations, the willingness of financial institutions to lend will be reduced, accompanied by the consolidation of off-the-shelf assets, financing channels, etc., and the gradual shift of real estate financing to formalized financial institutions and secondary market financing. The new lpr mechanism does not give housing enterprises too much room for adjustment and optimization in terms of credit availability and interest rates, as financial policy is subordinate to the state's macro-regulation policy and subordinate to it。
Analysis from the real estate support industry
It is a matter of concern that under the new lpr mechanism, the encouraging industry will benefit, taking into account the complementary financial policy support that the state will provide for the retrofitting of old and old neighbourhoods and squatter settlements. Thus, responding enterprises benefit from this in the market environment that leads to lower interest rates. At the same time, the support of financial policy and its accompanying contribution to the successful implementation of the reform process also contribute to the provision of dynamic and prosperous markets. Overall, there is still some positive impact on real estate market dynamism and market improvement。
Analysis of the macroeconomic environment
Under the new mechanism, economic growth and dynamism can also be driven by a different angle, as market-oriented instruments shift to more market-regulated demands, breaking the hidden floor of lending rates。
Conclusion
Overall, the new lpr mechanism has helped to boost the process of marketing interest rates and has been more conducive to the monetary policy regulation of the people's bank, which has led to lower lpr rates through lower mlf rates, the objective of lowering the interest rate on loans, improving the financial costs of the real economy and reducing the burden on the real economy。
In the light of current market mechanisms and policy orientations, the impact of the lpr improvements on the real estate market remains marginal in the short term, the country's macroregulation remains the dominant force influencing the real estate market, and new financial policies and structural reforms remain subordinate to the country's macroeconomic regulatory landscape. Stricter requirements remain at the level of credit availability and interest rates, as well as consistency in forward real estate policies. It is also accompanied by the possibility that, in the case of structural adjustments that may have a stimulating effect on the real estate market, the government will adopt corresponding elimination policy measures for real estate, such as upward adjustment of interest rates and stricter lending restrictions。
In the long run, the trend towards the marketization of interest rates is well established, market transfer mechanisms are well developed, monetary policy regulation of market interest rates is more visible and direct, and the effect of transmission to the end is more direct and visible, and thus the impact of price-oriented monetary policy regulation on the real estate market is becoming increasingly evident. Sustained attention to monetary policy on price factors is important for real estate market judgement and analysis。
