CHINA will lower down payment requirements and cut interest rates on mortgages for first-time home buyers starting next week to stimulate consumer spending and boost the sluggish real estate market.
Minimum down payments will be cut on Monday to 20 percent from the current 30 percent, the Ministry of Finance said in a statement on its Website last night. The floor for interest rates will be lowered to 70 percent of the central bank's benchmark rate, it said.
"The moves are clearly aimed at boosting house buying," as exports and industrial output growth slowed, Li Wei, a Shanghai-based economist at Standard Chartered Bank, told Bloomberg News. "But the effects will be limited - consumers need to see prices coming back to more affordable levels rather than government policies."
The deed tax, levied on home transactions, will be cut to 1 percent for first homes smaller than 90 square meters, and the stamp duty will be scrapped temporarily, the statement said. The value-added tax on land sales will also be suspended.
The government will speed up construction of low-rent housing and boost subsidies for low-income households, according to the the finance ministry.
The measures are aimed at improving people's living standards, helping "to improve people's expectations about the economy, boost consumption, fuel domestic demand and promote the stable and healthy development" of China's economy, the ministry said in the statement.
Shrinking home sales have strained liquidity among China's real estate developers and heightened concerns about disruption to consumption and investment growth just as overseas shipments stalled.
"There's still room for a 20-percent decline in China's home prices" as home buyers keep waiting for lower prices," Standard Chartered Bank's Li said.
Indeed, the ministry's actions follow a report that home sales prices in 70 major cities across China's mainland grew at the slowest pace in at least three years in September. The average sales price rose 3.5 percent last month compared with the same month last year, trimming back from 5.3 percent growth in August, the National Development and Reform Commission said yesterday.
The price of new homes gained 3.9 percent in September, compared with 6.2 percent in August, and the price of second-hand homes rose 2.6 percent in September, down from the 3.9 percent jump in August, the commission said.
"There was excess apartment supply last month as buyers lacked motivation to invest in an ailing market, sending the price trend downward," said Fang Yan, an analyst at Guosen Securities Co.
In the first nine months of the year, unsold apartments totaled 130 million square meters, up 10.2 percent from the year before.
Meanwhile, property firms developed a total of 179 million square meters of land, down 1.6 percent from a year earlier and the first drop since March 2007. The move indicated a decrease in market confidence among developers, Fang said.