The central bank of China plans to lessen the minimum 25 percent mortgage down payment requirement to 20 percent for first-time homebuyers in most cities, in the hope to revitalize the housing industry.
On the other hand, homeowners who want to purchase their second home will also have a lower mortgage down payment requirement, from 40 percent to 30 percent.
According to the report from Bloomberg, China's move to decrease the minimum mortgage down payment requirement is the result of their desperate effort to reduce the number of unsold homes that have been stocking up in its cities.
"This is clearly in line with the 'destocking' theme in the property market," said Zhou Hao, an analyst with Commerzbank AG in Singapore. "We believe that the relaxation of the mortgage policy will somewhat help accelerate the destocking process in the lower-tier cities."
The Wall Street Journal reported that the cut in the minimum mortgage requirement will be applicable to all cities in China that don't have restrictions in purchases, which include Beijing, Shanghai, Guangzhou and Shenzhen. These cities have strong sales demand and will retain the higher mortgage requirement.
There are some analysts that are doubtful of the effectiveness of the decreased mortgage down payment requirement.
"Most of the home glut, which the government aims to clear, is in small cities. But buyers in small cities don't typically use high mortgage leverage," said Du Jinsong, a Hong Kong-based analyst at Credit Suisse Group AG.
"It is not going to be very useful for boosting the property market, despite the government's intention to support the real-estate sector," said Nicole Wong, a property analyst with CLSA.
This is not the first time that China cut back its minimum mortgage down payment requirement. In September 2015, China lessened its mortgage requirement to 25 percent from 30 percent.
According to Reuters, China has started battling with the surplus of housing inventory in their cities since 2014, and has been having some good results since then. The December property sales have increased by 6.5 percent in a year-over-year basis, while the median home price rose by 7.7 percent.
