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China cuts downpayment rule for first-time buyers

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China on Wednesday said it will cut the minimum downpayment level for first-time home buyers in many cities, stepping up support for the sluggish property market and stumbling economy.

It was the second measure in two days to fire up consumption following a government decision to halve the tax on the sale of small cars.

The central bank and banking regulator said they would be lowering minimum downpayments for first-time home buyers to 25 percent, from the previous 30 percent, in cities that do not have restrictions on purchases.

BlackRock sees opportunities in China property
BlackRock sees opportunities in China property

The move is intended to "support reasonable consumption of housing", the People's Bank of China and the China Banking Regulatory Commission said in a statement on the central bank's website on Wednesday, dated Sept. 24.

China's property sector has hit a weak patch in the last year or so, with slowing sales leading to an overhang of unsold apartments and affecting demand for everything from steel to home appliances and furniture.

"The relaxed rule is helpful but the impact will not be immediate because the main reason for high inventory in some cities is bad location and transportation," said David Ji, Greater China head of research & consultancy at Knight Frank.

"The new rule will likely stimulate demand from buyers who are already observing on the sideline and help them to get into the market," Ji added.

The property sector accounts for 15 percent of China's gross domestic product, so even modest signs of improvement would relieve some pressure on the economy, which is expected to expand at its slowest pace in a quarter of a century this year.

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Home prices rose for a fourth consecutive month in August as sales and market sentiment improved, a rare bright spot in an otherwise gloomy economic outlook.

In a separate move on Wednesday, the housing ministry asked local governments to increase financial support to home buyers funding their purchases with housing provident funds.

Still, analysts do not expect a full-blown turnaround in the property market any time soon, as the huge overhang of unsold homes discourages construction and investment in all but the biggest cities.

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"The move shows the government's obvious intention to stabilize the property market. We expect favorable policies to be sustained in the property market until property investment starts to recover," said property analysts at Haitong Securities.

While home sales and prices have picked up in the last couple of months, annual growth in property investment in the first eight months of the year slowed to 3.5 percent, the lowest since early 2009, while new construction starts plunged by nearly 17 percent, impacting commodity markets worldwide.

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Wednesday's move is the latest step aimed at supporting a sector seen as pivotal to economic growth. The government eased restrictions on foreigners purchasing property in August, though the impact of that was seen as limited.

The lower downpayment requirements will not apply in certain big cities such as Beijing, Shanghai and Shenzhen that have imposed restrictions on buying to prevent bubbles.

Cities relaxed home purchase restrictions last year to support economic growth with only first-tier cities keeping the rules unchanged.