Local governments and banks in China have been granted permission from the People’s Bank of China to lower the minimum mortgage down payment for first-home purchases to 20 percent from the current requirement of 25 percent. It was also announced that the down payment requirement for second-home purchases will drop from 40 percent to 30 percent.
These new rules will only apply to cities where home purchase restrictions are not in place. RHB Securities analyst Toni Ho believes this is a move that will mostly benefit tier-2 cities in China. It was also noted by Ho that the loosening of mortgage policies in China would be effective in boosting end-users’ purchasing power while helping increase the housing demand in the second tier cities.
RHB is predicting that this move will benefit buyers in the mid-range and high-end segments the most because more buyers apply for mortgage loans in these segments. In the near term, Ho expects the market to react positively to the new supportive policy with demand increasing and developers being able to unload some of their current backlog.
While these measures are designed specifically to improve sales in tier-2 cities, RHB thinks sales in tier-1 cities will also remain strong. The reason behind this is the fact that the markets in many first tier cities currently have a strong demand coupled with a limited supply. Ho is less optimistic about lower tier cities and thinks the best case scenario will be a price stabilization in these areas.
RHB concluded that developers in second tier cities should benefit significantly from this with Shimao, Sunac China and KWG Properties looking to lead the way. This is the second cut to the minimum mortgage down payment for first-home purchases in China recently. Back in October the rate was slashed from 30 percent to 25 percent in an attempt to revive the fortunes of the country’s lagging property market.
