China Lowers Payments To Stimulate Property MarketMore stimulus has been rolled out by the China government to rejuvenate the housing market, especially for self-use demand, including tax exemption for individual home transactions and relaxation of mortgage rules. For mortgage policy, the minimum down payment for second-home buyers will be lowered from 60% or 70% to 40%. Buyers who are applying for public housing without an outstanding mortgage are qualified for an even lower down payment of 30%. First-home buyers using the provident fund can enjoy a new minimum down payment of 20%, which was previously set to 30%.

While the down payment cut may push up the home price, tax exemption aims to increase the supply of secondary residences to avoid drastic price increase. In the past, 5.6% of tax was required if the residential property held was sold within five years. Under the new policies, owners holding residential properties for two years or more will be exempted from the tax for home-sale.

So far the market reaction has been immediate. For the first week after the policy announcement on 30th March 2015, the transactions of primary residential property in Beijing rose 19.04% per week and 191.8% m-o-m to 2,063 registrations. A 17% per week increase was also seen for primary residential transactions in Guangzhou. The average price for first-hand properties in Longhua, Shenzhen also rose close to RMB 40,000 per square meter, which has gone up 20% in half a year. Nonetheless, given the home-purchase restriction in first-tier cities, the sudden surge in average home price after the new policy is not expected to last for a long time.

The property market contributed to 6% of China’s GDP in 2014, and land sales is also one of the major income sources for local government. Therefore, stimulating the property market is part of the central government’s plan to rejuvenate its cooling economy. For developers, the down payment cut would accelerate their process of selling existing inventory. On the other hand, end-users can improve the quality of their homes and housing demand would be boosted with such incentive.

In the coming quarters, the market expects a further batch of stimulus to be rolled out. Market sentiment will be improved and the easing policies would be on gradual progress to avoid property speculations. Along with the over-supply in small cities, the overall growth of real estate investment is expected to decline 5% in 2015.