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News Analysis: China lowers down payments for first home buyers

2015-10-08 08:35

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China on Wednesday cut the minimum down payments for first home buyers borrowing from commercial banks in cities with no house purchase quotas. The minimum down payment will be reduced from 30 percent to 25 percent, the People's Bank of China and China Banking Regulatory Commission said in a joint statement. Local governments are to be allowed flexibility in setting their own down payment ratio. "The minimum 25-percent down payment for first home buyers will significantly reduce buyers' financial burden," said Zhang Liqun with the Development Research Center of the State Council.

The housing market took a downturn in 2014 due to weak demand and a surplus of unsold homes, continuing into 2015, with both sales and prices falling and investment slowing. The central bank has cut benchmark interest rates four times since November, the government has eased purchase restrictions, and the housing market has gradually recovered.

Of 70 large and medium-sized cities surveyed, 35 reported higher new home prices in August, up from 31 cities in July. only 26 cities reported month-on-month price declines, down from 29. On March 30 this year, the authorities reduced the minimum down payment level for first home buyers using public housing funds to 20 percent of the home's value from the previous 30 percent. Public housing funds are drawn from a reserve fund which urban registered employees and employers are obliged to contribute to.

Employees can access the fund for home purchase loans at better rates than those offered by commercial banks. Minimum down payment levels for second home buyers in general were lowered to 40 percent in March from the previous 60 to 70 percent. Minimum down payments for second home buyers using public housing funds were down to 30 percent from 60 percent.

In 2010, Beijing took the lead in applying quotas policy to cool the market and dozens of cities, mainly in the first and second tier, followed suit. The Chinese Academy of Social Sciences in May claimed the authorities would adjust quotas in some cities, allowing residents in those areas to buy second homes, but the quota remains unchanged in the largest cities, such as Beijing and Shanghai.

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