China to reform individual housing loan interest rate formation

China has decided to set its interest rate for commercial individual housing loans in a more market-based manner in its latest move to regulate the property market's growth.

The country's central bank announced on Aug 25 that it will replace the loan benchmark interest rate with the loan prime rate (LPR) as a benchmark for setting the interest rate of newly issued commercial individual housing loans.

The decision came after the People's Bank of China (PBOC) unveiled a plan on Aug 17 to improve and reform the country's LPR mechanism. Disclosed on the 20th day of every month, the LPR functions as a market-based reference for lenders to set their loan interest rates.

Starting from Oct 8, the interest rate of newly issued commercial individual housing loans will be based on latest month's LPR of the corresponding term, while certain basis points will be added, the PBOC said in a statement.

The basis point addition should be in line with national and local housing credit policies and remain unchanged during the housing loan contract term.

The housing loan interest rate for first-time buyers should not be lower than the LPR of the corresponding term, while that for second-time buyers should not be lower than the combined level of the LPR and 60 basis points.

The loan interest rate for commercial-purpose housing should not be lower than the combined level of the LPR of the corresponding term and 60 basis points, while interest rate policies for individual housing loans via one's housing provident fund will stay unchanged.

Housing loan contracts already inked or in implementation will not be affected by the new rules.

A basis point addition floor will be decided based on the development of local property markets, the statement said.

The new housing loan interest rate policy aims to ensure that "housing is for living in, not for speculation" and facilitate the development of a long-term management mechanism for the real estate market, the central bank said.