According to the economic data in October, short-term growth still seemed weak, while relative to economic growth, the current weighted average interest rate on loan was obviously too high, and the awkward combination of weak economic growth and high interest rate might be an important reason for this interest rate cut. In Q3, the weighted average interest rate on RMB loans of financial institutions remained high at 6.97%, while the difference of China’s nominal GDP and weighted average interest rata on nominal loans showed a sharp narrowing from 9.8% in 2011 to 2.3% in 2013 and only 1.5% in 2014.

With this interest rate cut of 0.4%, the interest rate on housing loans is equivalent to 6% off on the original basis, plus “930” mortgage loan interest rate preferences (if calculated by 10% off), totally equivalent to 15% off based on the previous interest rate on housing loans, which would effectively reduce the cost of housing purchase. Looked from the perspective of history, interest rate cut is favorable for improvement of real estate sales, and more importantly, after interest rate cut, there usually would be the corresponding expansion of monetary aggregates, which has better consistency with the movement of real estate sales. This means, the easing trend of both volume and price in the future monetary environment will form an important support to real estate recovery. In the meantime, due to low economic growth, the “loan-cherishing” practice of banks to enhance risk control might be reinforced, and meanwhile, the insufficiency of social effective demand would also bring credit demand contraction, which might drive banks to increase mortgage loans of policy support.

Stimulated by the “930” real estate policy, the national real estate sales growth of October apparently turned better, the cumulative growth from January to October also showed a slight rebound, and housing price falls of large and medium-sized cities significantly narrowed, so in our judgment, a new cycle of real estate growth has started (for details about the real estate cycle theory, please refer to our investment time point report).