China eases minimum mortgage down payment again: Will it work?

China eases minimum mortgage down payment again: Will it work?

The latest reduction in down payment requirements for first-time home buyers in China may be limited to certain sectors of the market, analysts said.

SHANGHAI: China on Tuesday (Feb 2) slashed the minimum down payment for home buyers in small cities, in a bid to stimulate a sluggish property market.

The minimum down payment in cities that do not have property curbs was reduced to 20 per cent, from 25 percent, for first-time buyers. Meanwhile, second-time home buyers will now have to pay 30 per cent upfront, lower than the current 40 per cent.

The new rules do not apply to cities like Shanghai, Beijing, Guangzhou, Shenzhen and Sanya, which limit the number of homes people can buy.

The People's Bank of China (PBOC) said the new measures are to "further support reasonable housing consumption" and followed a recent report by ratings agency Moody’s which predicted growth in China’s property sales to enter a slow growth period in 2016.

NOT A SURPRISE

With the mainland making de-stocking housing inventory a key economic priority for 2016, the move did not come as a surprise for most analysts.

However, impact from the latest policy may be limited to certain sectors of the market, analysts said.

"People don't use that much leverage in small cities,” Chen Jiahe, chief strategist of Cinda Securities, said. "But it may still work...more people will (start) thinking about owning a flat, rather than keep on renting one."

The move may prompt some first-time home buyers who have been sitting on the fence, to seal the deal.

"(This is) especially so for the 100 million residents from old towns and villages whose homes are being re-developed. If they're compensated for resettling, the reduction in down payment for first-time home buyers can have some stimulating effect here," Shao Minghao, data research director at property data analysis and consultancy firm Urban Surveyors, said.

Relaxing the down payment rules was also seen as part of China's efforts to urbanise hundreds of millions of rural residents into lower-tier cities and boost consumption there.

But for this to happen, other fundamental economic factors need to be in place.

"Lowering the threshold to buy a home is good," said Michael Cole, founder of Mingtiandi, a Shanghai-based real estate intelligence firm. "But are there jobs for them to do this?"

Nevertheless, the new rules are likely to cause a surge in real estate transactions in the coming months.

"This is the most powerful weapon that they have," Mr Cole added. "If this doesn’t work, doesn’t produce some lasting results, they could have some deeper problems."

China logged its weakest pace of expansion in a quarter of century in 2015, with gross domestic product (GDP) coming in at 6.9 per cent.

Source: CNA/sk