China Said to Prepare Steps to Counter Housing Market Slump

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China is preparing measures to counter a housing market slump and will roll them out if the economy needs support, people with knowledge of the matter said.

The government could reduce down-payment requirements for second-home purchases, the people said, asking not to be identified as the information isn’t public. Another possible step: removing the sales tax after homeowners hold their property for two years -- down from a five-year minimum now.

The contingency plans come amid signs of a deepening decline in the real-estate industry in the world’s second-largest economy. China’s new-home prices posted a record year-on-year decline in January, according to Bloomberg Intelligence analysis of government data tracking 70 cities.

While a gauge of manufacturing Wednesday indicated some stabilization in what has been a protracted slowdown in China’s factories, economists still anticipate that policy makers will increase stimulus measures to shore up growth.

“The government is quite concerned,” Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong, said by phone Wednesday. While the manufacturing data “shows some rebound, the overall economic downturn is not arrested. The government will carefully monitor the economic data and react.”

Implementation of the new easing policies will depend on whether an economic downturn continues or worsens, the people said. The Finance Ministry didn’t immediately respond to faxed questions on the measures.

Second Mortgages

News of the possible stimulus measures helped the Hang Seng Composite Properties & Construction Index rise as much as 0.8 percent in afternoon trading in Hong Kong, the biggest intraday gain in almost two weeks. The gauge was up 0.1 percent as of 3:39 p.m. in Hong Kong. Guangzhou R&F Properties Co. gained 1.3 percent while China Overseas Land & Investment Ltd. rallied 2 percent.

China’s central bank already lowered interest rates in November, and officials previously removed some curbs on the property industry that had been put in place in past years to address the danger of a bubble.

The central bank on Sept. 30 allowed people applying for a loan to buy a second home to qualify for lower down payments and mortgage rates previously available only to first-time homebuyers, so long as they had paid off their initial mortgage.

Under existing rules, first-home buyers need to make a 30 percent down payment, compared with at least 60 percent for a second home. They can also get as much as a 30 percent discount on mortgage rates from the central bank benchmark.

“Whether the policies are rolled out depends on trends in transaction volume,” Citigroup’s Ding said. “The news is generally positive. The message is: the government will not let the real-estate market go into free-fall.”

Any new measures may help boost an economy that grew 7.4 percent last year, the least since 1990. The country’s leaders are forecast to unveil a 2015 growth target of around 7 percent at a gathering of the national legislature in Beijing next month, down from about 7.5 percent last year.