China set to ease property policy by year-end

Beijing may allow residents to borrow more under a subsidized mortgage scheme and cut transaction taxes to spur property purchases. It may also give developers more time to pay various fees and taxes to ease their cash-flow strains, analysts said.

"The central government will issue a nationwide policy-easing package toward the end of this year as the downturn in the property market deepens," said Shi Lei, an analyst with TX Investment Consulting Co in Beijing.

Without waiting for a national plan, more than a dozen cities across China have already relaxed policies out of concern that a slack real estate market will bite into their tax revenues and further weigh on already weakening local economies.

The China Real Estate Association has requested formal permission from the State Council, or cabinet, for local governments to take unilateral action.

The group has also asked for measures to encourage people to move up the property ladder, according to media reports.

As part of cuts to China's benchmark lending rates on Wednesday, the central bank lowered the rate on special mortgages for tenors of over five years from 5.13 percent to 4.86 percent, well below the rate on ordinary loans of 7.47 percent.

"China will continue to roll out other measures in a clearer effort to support the stable and healthy development of its real estate sector," said Lu Zhengwei, chief economist of Industrial Bank in Shanghai.

Cut-price loans

Special mortgage rates are available to participants in a nationwide housing scheme funded by contributions from employers and employees.

The amount households may borrow under the scheme varies from city to city but is usually capped at several hundred thousand yuan. Raising the limit is an option that is under active consideration by cities including Nanjing.

"In my personal view, the central authorities should have relaxed policy long ago, considering the importance of the property industry to our economy," Lu said.

Sales have been sluggish, and prices in some major cities such as Shenzhen have plunged by up to 40 percent since Beijing intensified a campaign a year ago to curb excessive price rises and to encourage the construction of more-affordable homes.

Many experts fear that, without fresh stimulus, the property market will sink further and drag down the economy.

Real estate accounts for about 24 percent of China's urban fixed-asset investment and is a crucial driver of industries such as steel, furniture and household appliances.

Four big Chinese steel makers, accounting for a fifth of national output, have agreed to cut production by up to 20 percent after weak demand drove prices down by about 17 percent from their peaks in June and July.

"Given the ongoing decline in sales and correction in prices, as well as the continued tight control on bank lending to the developers, we expect real estate investments and construction activities to slow down significantly in the coming months," Tao Wang, UBS economist in Beijing, said in a report this week.

Cities turn to self-help

With the slow-moving central-government bureaucracy still to reach a consensus, some second-tier cities including Xian, Shenyang and Xiamen have taken matters into their own hands.

In late September, Nanjing, capital of the prosperous eastern province of Jiangsu, introduced cash subsidies and lowered transaction taxes to entice home buyers.

The city government also urged banks to lend more to the property sector, allowed developers to delay paying various fees and cut the value-added tax they must pay.

Philip Wu with real estate consultants DTZ in Shanghai said the incentives succeeded in luring more would-be buyers to look at property during last week's national holiday.

"There'll be more positive measures to come and people's expectations will change," Wu said.

However, Guo Saihong, a young Nanjing homeowner thinking about trading up, said the benefits were small compared with the cost of buying a new house and would not sway her decision.

While many would-be buyers expect prices to fall further, analysts say that on many measures the fundamentals of China's market are stronger than in the United States or Britain.

UBS's Wang says houses have become more affordable in recent years relative to average incomes, while a 30 percent down payment requirement limits the risk of mortgages turning sour.

Investment in real estate, though slowing, remains strong and property price inflation nationwide is still above 5 percent.

Looking at the big picture, Zhang Zhengjun, a researcher at the Development Research Center, questioned whether China needed to pull the emergency cord. "Is our real estate market really in such deep trouble?" asked Zhang, whose think-tank reports to the State Council.

Source: Reuters