China's central bank, People's Bank of China, has decided to cut down payments for second homes to lift its struggling housing market, reports Reuters.
The outlet notes that the action to soften the lending requirement for homeowners is part of the bank's move to alleviate Beijing's "sliding real estate prices."
The previously mandated minimum downpayment set by the bank for buying a second home was 60 to 70 percent, more than half of the property's value, as reported by China's official news agency, Xinhua. This time, the downpayment will reportedly be eased to 40 percent only.
High minimum downpayment in China
According to The Malaysian Insider, the said policy of requiring homebuyers to give at least 60 to 70 percent was originally aimed to cool down high real estate prices four years ago. The policy makers were worried that such increasing home prices would take its toll on affordability and would bring forth "social unrest."
But, it seems the original policy has affected much of China's growth, The Malaysian Insider adds. In 2014, China's domestic product reportedly rose to 7.4%, which was the slowest GDP rate recorded in 25 years. It was also noted that the central bank acted on the problem by cutting interest rates twice in the last five months, one in November and another in February. Another action applied by the bank to address the issue is reducing its bank reserve ratio.
The real estate market focus
The Malaysian Insider notes that the real estate industry in China is a very important economic factor. A big portion of the local-governments in the country depends on land sales as its source of income for their cities, the outlet informs.
On Monday, the Ministry of Finance also announced that it is set to decrease taxation on home sales as well for those purchased over two years ago. They will be exempt from business tax, or 5.5 percent of the contract price of the house, Xinhua reports.
The recent change in policies by the People's bank of China rapidly reached investors' ears through media on Monday. According to Reuters, real estate stock market activities became busy, reflecting the nation's positive news.
According to a similar report published on China Daily Asia, "Analysts said lowering the down payment requirement will support growing demand for better housing, benefiting the property market. For example, the down payment on a 90-square-meter apartment in central Shanghai under the previous policy was about 3.78 million yuan ($616,000). It is now 2.11 million yuan."
