The Chinese authorities have announced measures to shore up the sinking property market. The minimum downpayment needed on second home purchases will now fall to 40%, from current levels of 50%-69% in most cities and 70% in Beijing and Shanghai.
In addition, a capital-gains tax exemption will now apply to sellers who have owned their home for two years, down from a five-year minimum.
In February, house prices fell by an average of 5.7% year-on-year in China’s 70 biggest cities. In January 2014, when they peaked, they were climbing at an annual rate of almost 10%. Property accounts for 23% of GDP when related industries, such as sales and home equipment, are taken into account.
What the commentators said
Now that several rounds of cautious easing measures have failed to pep up prices, “China is finally getting serious”, said Alex Frangos in The Wall Street Journal. The mortgage requirements are still pretty tough by Western standards, but the government is “essentially saying to China’s cash-rich buyers that [they should] get back in the game”. But will they want to play?
For one thing, many developers already offer buyers ways to delay or avoid downpayment requirements, so it’s unclear how much difference the measures make. And inventories of unsold properties are at record levels, while prices are already on the slide. It’s going to “require a change to expectations, not just to the availability of debt”, to arrest the housing slump that is dragging down the economy, said John Foley on breakingviews.com.
In markets driven by speculation rather than fundamentals – “these are second homes, after all” – the key factor is whether buyers think prices are likely to rise again. “That kind of psychological adjustment is not in the gift of bureaucrats.”
That’s why the authorities would be better off working out how to cushion the system against the property slump, continued Foley. China’s planners can handle “technical tweaks”, such as making banks build up their capital cushions. Micro-managing human behaviour is beyond them.