Photographer: Tomohiro Ohsumi/Bloomberg

China Eases Mortgage Down Payment to 20% for First Homes

Updated on
  • Central Bank eases requirements as it steps up support
  • Minimum down payment required for second homes cut to 30%

China’s central bank said it will allow banks to cut the minimum required mortgage down payment to 20 percent from 25 percent for first-home purchases to the lowest level ever as it steps up support for the property market.

The eased requirements will be for buyers in areas without the purchase restrictions that are applied in some of the biggest metropolitan areas such as Beijing and Shanghai, the People’s Bank of China said Tuesday in a statement on its website. The minimum down payment for second-home purchases was cut to 30 percent from 40 percent, the central bank said.

A rising stockpile of unsold new homes is hampering government efforts to spur investment expanding at the slowest pace in more than five years. China’s politburo, the top decision-making body of the Communist Party, 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 ‘destocking’ theme in the property market,” Zhou Hao, an analyst with Commerzbank AG in Singapore, wrote in a note to clients on Tuesday. “We believe that the relaxation of mortgage policy will somewhat help accelerate the destocking process in the lower-tier cities.”

Reviving Investment

Reviving investment in real estate is crucial for the government, which has stepped up monetary easing with its sixth interest-rate cut since late 2014 and scrapped a ceiling on deposit rates. This is the central bank’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 move extends loosening in the property market since September 2014, as Premier Li Keqiang seeks to boost demand in China’s growth expanding last year at the slowest pace in a quarter century. The down payment requirement for first homes was cut to the lowest in history. From 2003 to 2010, down payments were as low as 20 percent for first-home buyers, before it was raised to 30 percent as the market heated up. 

The country’s unsold homes continue to grow by area, surging 11.2 percent to 452 million square meters at the end of 2015, the latest statistics bureau data show. The inventory is even bigger including homes which haven’t been built, and are estimated to take three-and-a-half years to be cleared, said Zhu Jin, a Shanghai-based analyst at Orient Securities Co.

Bifurcated Market

“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,” said Du Jinsong, a Hong Kong-based analyst at Credit Suisse Group AG, adding China’s effort to spur buyers to borrow more may not have big impact imminently.

China’s property market has gotten increasingly bifurcated, with prices in second and third-tier trailing those in larger hubs including Shanghai and Beijing. While the home market is recovering, price increases are still very concentrated in a small segment of the market nationwide, Nicole Wong, Hong Kong-based head of property research at CLSA Ltd., said ahead of Tuesday’s announcement. New-home prices climbed in 39 cities in December, six more than a month earlier, among the largest 70 cities tracked by the government, statistics bureau said Jan. 18.

— With assistance by Jeff Kearns, and Emma Dong

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