The central bank moved on Monday to slash the minimum downpayment required on second-home purchases to 40 per cent — from 50 to 60 per cent in most cities and 70 per cent in Beijing and Shanghai — reversing measures enacted in 2010 to curb runaway housing prices and rein in speculative demand.
The finance ministry also expanded a capital-gains tax exemption to include sellers who have owned their home for as little as two years, rather than the previous five-year minimum. Like the downpayment rules, capital-gains taxes had been used to discourage the reselling — or “flipping” — of homes within a short period to make a profit.
Housebuilding is a pillar of China’s economy, driving demand for steel, cement, copper and other basic materials. The property market accounts for about 23 per cent of gross domestic product when sales, outfitting and other linked industries are included.
“Recent macro data indicate that downward pressure on the economy remains heavy,” said Xie Yaxuan, a macroeconomic analyst at China Merchants Securities in the southern city of Shenzhen. “Policy makers needed to respond.
“Adjusting downpayments on second homes will help to unlock some demand for housing and stabilise the market and hopefully investors’ and households’ willingness to buy along with it.”
Monday’s measures follow a directive last week by the land and housing ministries instructing local governments to restrict new land sales and buy back some land that had been sold but not yet developed.
The downpayment rate for first-home purchases remains unchanged at 30 per cent, though many regions had already loosened the definition of first-home purchasers late last year to include people who had paid off their mortgage on a first home that was also shared with a family member.
An index tracking Shanghai-listed property shares rose 7.3 per cent on rumours of the impending policies, compared with a 2.6 per cent gain in the Shanghai Composite.
Some analysts remain sceptical about the impact of the changes, noting that many developers were already offering buyers ways to delay or avoid downpayment requirements.
Competition for investment funds from the country’s red-hot stock market has also hurt demand for housing. The Shanghai Composite hit a fresh seven-year high on Monday.
“I brought some investors to visit Tier 2 cities over the weekend and found home buyers there were not as excited by the news [of impending downpayment policies],” Jinsong Du, Asia property analyst at Credit Suisse in Hong Kong, wrote in a note on Sunday, when rumours of the policy announcement were already circulating.
Additional reporting by Ma Nan in Shanghai
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