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Property liberalization to shore up economic growth

2015-April-1       Source: Xinhuanet.com

China's latest moves to relax property curbs surprised the market and sparked fierce discussion on the possible effects of the new policy mix.

China's latest moves to relax property curbs surprised the market and sparked fierce discussion on the possible effects of the new policy mix.

However, market consensus is that potential buyers are left with more options in their home purchase decisions and the sagging property sector will be gradually lifted, adding new fuel to the country's economic growth.

On Monday, the central bank and another two government organs announced a cut to the minimum down payment requirement for second home buyers -- to 40 percent from 60 to 70 percent.

Minimum down payments for first and second home purchases using the housing provident fund, which offers urban residents lower rates than those of commercial banks, were also lowered.

Meanwhile, the Ministry of Finance announced on Monday that sales of homes purchased more than two years ago will be exempt from business tax. Previously, the exemption was just for homes bought more than five years.

MORE CHOICES FOR BUYERS

Li Ming, a 26-year-old living in north China's Tianjin, said the new measures are generally good news for potential buyers.

"For ordinary workers like me, the new measures reduced the pressure from down payment requirements, making us more willing to buy and able to afford a home within a shorter period of time," he said.

As a first home buyer, Li's minimum down payment using the housing provident fund was cut to 20 percent from 30 percent, allowing much greater leverage with the same amount of money at hand.

"I'm considering buying an apartment after the release of detailed supporting measures," Li said.

Along with larger leverage, housing demand will also rise as the threshold for home purchases has been lowered.

Living in Shijiazhuang, the capital of Hebei Province, Pang Zhao has been planning to buy an apartment ever since he began working more than a year ago.

He said the easing measures may drive up home prices in Shijiazhuang. "At least, prices are not going to fall any longer."

Pang said he would begin his new home hunting soon and might eventually choose to buy.

MARKET TO PLAY BIGGER ROLE

The latest measures came as China's property market took a downturn in 2014 under the accumulative effects of measures to curb the previously red-hot sector. The cooling trend has continued into 2015, with both sales and prices falling, and investment slowing.

According to an official survey of 70 cities, new home prices dipped in 66 of the cities on a monthly basis in February. On a year-on-year basis, the prices dipped in 69 of the cities.

Liu Lin, head of the property research center of the National Development and Reform Commission, said China's previous policies have checked speculative demand, and now it is time to give more policy support to residents' demand for improved housing conditions.

"The new measures grant commercial banks the right to decide concrete down payment percentages and interest rates, showcasing China's efforts to make interest rates market-based and allowing the market to play a decisive role in allocating resources," Liu said.

Since November 2014, the central bank has also cut interest rates twice, which proved insufficient to reverse the downward trend in the housing sector.

Zhang Dawei, chief analyst with Chinese property information provider Centaline, said the relaxation will lead to an increase in housing demand.

"Amid the slowdown of China's economic growth, the role of China's housing sector will be more important than the previous year," he said.

The Chinese economy grew by 7.4 percent in 2014, its lowest pace in 24 years.

FUTURE POLICY IMPLICATIONS

Zhang said the country will continue credit easing this year, forecasting another two or more cuts in reserve requirement ratio or interest rates.

In mid-March, Premier Li Keqiang said in a press conference that the government still has a string of policy tools at its disposal to bolster economic growth, aiming to achieve more stable economic development.

UBS economist Wang Tao also said that the latest measures can help to activate China's secondary housing market and encourage home owners' interest in taking a step up the property ladder.

"We expect further easing to come, including one to two rate cuts, with the next one in the second quarter of 2015," she said in a research note.

While still expecting further policy measures to come, they will only help to cushion China's economy from the ongoing property downturn, and provide a partial but not full counterbalance, according to Wang.

"As such, we maintain our GDP growth forecast of 6.8 percent for 2015," the economist said.

Editor: Steven

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