Zhang Lei was happy that he could finally afford an own home this year. The 28-year-old planned to get married next year in Zhengzhou, a second-tier city in central China, and was determined to buy a house.
Four years after graduation, he has more than 200,000 yuan (30,524 U.S. dollars) in savings but that's still about 160,000 yuan short of the down payment he'll need. Now, after the government lowered the minimum deposit for home purchases in most cities, including Zhengzhou, Zhang can pay 120,000 yuan less, allowing him to afford a house with a little help from his family.
For many young Chinese like Zhang, who think of having their own home as a prerequisite for marriage, a lower down payment ratio is a significant boon. In its latest effort to revive the sluggish real estate industry, China announced another cut in the down payment requirements for home purchases in most cities.
The People's Bank of China (PBOC), the central bank, said that in cities where there was no home purchase restrictions, down payments for first homes financed by loans from commercial banks will stay at a minimum of 25 percent "in principle," but they can go down as much as 5 percent.
The move will bring a moderate stimulus to housing demand and help reduce the country's mounting property inventories, analysts said, adding that a lower down payment ratio will not give a rise to banks' credit risks.
"The policy will definitely play a positive role in driving housing consumption while the effect may vary in different regions," said Liu Lin, director of the real estate research center at the National Development and Reform Commission, the country's top economic planner.
Liu expects the government will maintain a loose policy that's in favor of the real estate market in 2016, judging from the current policy environment. China's property sector took a downturn in 2014 due to weak demand and a supply glut.
Sales and prices are falling, investment is slowing, and unsold homes are accruing, especially in medium and small-sized cities. By the end of 2015, China's unsold housing floor space rose to 718.53 million square meters -- enough to house nearly 24 million people given China's estimated 30 square meters of per capita living space.
To battle such woes, the government has actively adopted stimulus measures such as lowering the interest rates and cutting the down payment ratio for first home buyers, as the central bank did last September.
The move on Tuesday brought the ratio down further from September's level, with the excess amount going toward future monthly payments. It heightened jitters concerning financial risks on the banks once the home buyers become insolvent.
"The 20 percent down payment ratio is high enough to ward off financial risks", said Dong Yuping, assistant to the director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences. Based on current statistics, the present default rate remains low, said Dong, which offers no clue for mortgage delinquency problems.
Those like Zhang Lei, who is purchasing a home out of necessity, will have the motivation as well as the ability to pay off the mortgage. The banks can adjust the payment rate, if necessary, to deal with the solvency issues, according to Dong.
As the new mortgage policy lowered the threshold for down payments, struggling young white-collar workers, including millions like Zhang, have a better chance to afford a home.
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