SHANGHAI—China is ramping up efforts to support its flagging housing market in a new sign that Chinese leaders are worried about economic growth.
Buyers of second homes would be required to make a minimum down payment of 40%, down from the previous 60%, as part of efforts to encourage upgraders to take the plunge, the People’s Bank of China, the housing ministry and the banking regulator said in a joint statement.
Property owners will be exempt from paying a business tax on the sale of an ordinary home if they have owned it for at least two years, down from the previous minimum of five years. The tax, which is around 5.5%, is usually added to the bill and paid for by home buyers instead.
The moves signal that Beijing is increasingly worried that the weak property sector is hampering growth. China said 2014 growth was the slowest in more than two decades and has set its annual targetfor this year at an even lower rate. “It’s a sign that the policy makers are becoming more anxious,” said Rosealea Yao, an analyst at Gavekal Dragonomics.
But some analysts aren’t convinced that these measures will do much to pare down the hefty inventories of homes in China’s less-developed cities, where demand isn’t as strong. The property markets in Beijing and Shanghai have been stronger than those of other cities.
“In the short term, there might be a boost in sales as people return to the housing market on hopes for reform and further loosening measures, but it’s still a question mark regarding how effective the lowered rates would be in reviving the market in the longer term,” said Ms. Yao.
Average home prices fell in February on a year-on-year basis for the 10th straight month, as property developers struggle with excess inventory and resort to price-cutting to entice home buyers. The property sector accounts for nearly one-fourth of the Chinese economy, according to some estimates, after taking into account related industries such as building materials, home appliances and transport.
China has cut interest rates twice, once in November and another in February, as well as lowered the amount of money banks have to set aside as reserves, moves that would help to ease the liquidity environment but has so far had a limited impact on potential home buyers. Housing sales in the first two months this year fell by 16.7% from the same period a year earlier, the sharpest dip in three years.
“The benefits of this aren’t going to be as much as expected,” saidJinsong Du, an analyst at Credit Suisse. He said on a recent trip to what is called a second-tier city in China—considered less developed than the likes of Beijing or Shanghai—that many developers are already offering flexible-payment programs. These include delayed payment plans for the down payment, or having another financial institution offer a loan to home buyers to help pay the down payment.
The PBOC said that first-home buyers who borrow from their local housing provident funds will have to pay a minimum 20% down payment. Second-home buyers using provident funds will have to pay a minimum 30% down payment, the statement added.
Currently, first-time buyers have to make a down payment of 30%.
In late September, the PBOC and the country’s banking regulator loosened mortgage restrictions by allowing purchasers of second homes to be considered first-time buyers if they have paid off their first home mortgages. They also encouraged banks to offer as much as a 30% discount on benchmark rates for mortgages. Beijing has started to loosen property regulations to encourage more sales since April 2014.
Property developers have recently reported their 2014 earnings, with the larger players still showing sales growth, though many have reported higher debt levels and thinner margins amid the slowing economy.
Guangzhou-based property developer Evergrande Real Estate Group, one of the largest property developers in China with projects in more than 150 cities, reported Monday its 2014 earnings attributable to shareholders edged lower to 12.60 billion yuan from 12.61 billion yuan from a year earlier.
“We are definitely facing the most challenging years for our mainland investment property business in 15 years,” said Ronnie Chan, chairman of commercial property developer Hang Lung Properties Ltd., in his letter to shareholders dated March 24. “The time to recovery might be even longer than we had expected. Frankly, we cannot see the end of it at this stage,” he added.
By: Esther Fung, for the Wall Street Journal, March 30, 2015
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