China will cut the minimum down payment for some home purchases in smaller cities in a bid to revive the sluggish property market and a slowing economy, the central bank said yesterday.
The minimum deposit for first-time home buyers in cities that do not have curbs on home purchases would fall from 25 percent to 20 percent, the People’s Bank of China said on its website.
The cut aims to “…further support reasonable housing consumption and promote the stable and healthy development of the property market”, the PBOC said.
The down payment for second-home buyers was cut from 40 percent to 30 percent.
The easing does not apply to Beijing, Guangzhou, Shenzhen, Sanya, or Shanghai apartments as these cities still limit the number of homes a resident can buy.
The easing of down payment rules was the fourth time such measures were implemented since October 2014 when the government took action to boost the still sluggish real estate market in smaller cities in China.
Analysts cited the slowdown in real estate, a key source of revenue for local governments in China, as a drag on the world’s second-largest economy which grew 6.9 percent in 2015, its slowest pace in 25 years.
“We continue to see GDP growth grind lower as on-going de-stocking in the property sector and its knock on effect on industrial and mining activities overwhelm additional policy support,” Wang Tao, head of China economic research at UBS, said in a report last week.
A rising inventory of unsold new homes is blocking government efforts to spur investment which is expanding at the slowest pace in more than five years. China in early December vowed to reduce home inventory as one of its key tasks in 2016, the official Xinhua News Agency reported.
“This is clearly in line with the ‘de-stocking’ theme in the property market,” Zhou Hao, an analyst with Commerzbank AG in Singapore, wrote in a note to clients yesterday.
“We believe that the relaxation of mortgage policy will somewhat help accelerate the de-stocking process in the lower-tier cities.”
This is the PBOC’s second move to slash down payments since September, when it cut the minimum ratio for first-time buyers to 25 percent from 30 percent, a requirement that had been in place since 2010.
The down payment requirements for first homes were cut to their lowest in history. From 2003 to 2010, down payments were as low as 20 percent for first-home buyers, before being raised to 30 percent as the market heated up.
Unsold homes nationwide rose 11.2 percent to 452 million square meters at the end of 2015, as demonstrated by the latest data.
Du Jinsong, a Hong Kong-based analyst at Credit Suisse Group AG, said that “Most of the home glut, which the government aims to clear, is in small cities. But buyers in small cities don’t typically use high mortgage leverage.”
The average price of a new home in China’s 100 major cities rose 0.42 percent month on month in January to 11,026 yuan (US$1,675) per square meter, the China Index Academy said, down slightly from December’s 0.74 percent gain.
