China Loosens Home-Buying Rules to Counter Economic Slowdown

China announced steps today to make buying and selling a home cheaper, intervening to revive a slumping property market that’s weighed on economic growth and cut demand for commodities from copper to steel.

The required down payment for some second homes was lowered to 40 percent from 60 percent, the People’s Bank of China said on its website. The finance ministry later said select homeowners will be exempted from a sales tax if they sell after holding a property for two years or more. The previous minimum to avoid the 5.5 percent tax was five years.

Today’s moves add to the government’s efforts to arrest a slide in home prices and spur growth that the government targets to expand at its slowest pace in 15 years. Two interest rate cuts since November, along with a loosening of property curbs in September, had so far failed to stem the decline, as new-home sales slumped 17 percent in January and February.

“If the property market continues to weaken, it will be very hard for the government to keep the growth rate at 7 percent,” said Xu Gao, Beijing-based chief economist at Everbright Securities Co. The government may follow up with measures to support property developers, Xu said.

Central bank Governor Zhou Xiaochuan had signaled on Sunday the government was prepared to act, saying that the growth rate had fallen a bit too much and leaders had room to respond. The economy grew at 7.4 percent last year, the weakest since 1990, and real estate accounts for about 20 percent of gross domestic product.

FTSE Futures

Futures on the FTSE China A50 Index rose as much as 0.8 percent in Singapore trading after the close of mainland markets. A gauge tracking Shanghai-listed developers jumped 7.3 percent on Monday, the most since March 4, 2009.

Today’s moves highlight the government’s determination to reverse course after four years of tightened property curbs aimed at driving out speculators. In September, the central bank broadened access to lower down payments and mortgage rates. Yet, new-home sales recorded the first year-on-year increase in 12 months in December, only to fall again in January and February.

The government probably has more work to do to arrest the slide in sales, Bloomberg economist Tom Orlik wrote in a report. He forecast another interest-rate cut in the second quarter along with other moves to support housing demand.

“Even then, the outcome will likely be an end to the housing slump rather than a return to the boom,” Orlik wrote.

In a sign of just how much slower home sales have dragged on the economy, industrial output, investment and retail sales missed analysts’ estimates in January and February. Iron ore for September deliver on the Dalian Commodity Exchange dropped to the lowest close on record, while copper posted its biggest drop in seven weeks earlier this month.

Price Declines

The number of cities with month-on-month price declines rose in February to 66 from 64 in January, among the 70 tracked by the government, after falling for three consecutive months.

“We expect the housing market correction will continue, but at a relatively modest pace through the course of this year,” JPMorgan Chase & Co. China economist Haibin Zhu wrote in a note. “The moderation in housing activity will continue to weigh on land sales revenue, putting pressure on local governments’ funding capacity.”

The measures will help boost sales in bigger cities where more people want to upgrade their homes and the market is more active, Liu Yuan, the Shanghai-based research director at Centaline Group, China’s biggest property agency, said by phone. The impact will be much more muted in small cities where oversupply is severe, he said.

The lower down payment applies to applicants buying a second home to improve residential conditions, the central bank said. Such homebuyers account for about 30 percent of the market in the biggest cities, according to Liu’s estimates.

More supportive policies “may not help much,” Credit Suisse Group AG’s Hong Kong-based property analyst Jinsong Du wrote in an e-mailed note before the announcement. Du said developers had already offerws down payments below the official level in some cities. “The national housing market should stay weak,” Du said.

— With assistance by Dingmin Zhang

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