China makes it easier for people to buy homes

Source : Business Times - 22 Oct 2008

China’s Ministry of Finance on Wednesday announced a series of policy changes that will make it easier for people to buy their first homes, fleshing out a directive approved last week by the cabinet.

The move comes just days after China said that annual economic growth slowed sharply to 9.0 per cent in the third quarter compared with 10.1 per cent in the second quarter.

The government has been seeking to support the economy and provide more help for those on lower incomes in both the countryside and cities.

From Nov 1, the property deed tax will decline to 1 per cent from 1.5 per cent for people buying their first home if it is smaller than 90 sq-m (970 sq ft), the ministry said in a statement on its http://www.mof.gov.cn website.

For those buying their first home, regardless of the size, the downpayment requirement will be lowered to 20 per cent from 30 per cent, and banks will be allowed to charge as little as 70 per cent of benchmark lending rates for such mortgages.

‘(We need to) step up investment to safeguard people’s living conditions and improve the lives of people with low incomes,’ the ministry said in its statement.

It also removed the 0.05 per cent stamp tax and land value-added tax for home purchases.

The move marks an initial unwinding of property tightening measures that the government put in place over the last few years, to counter what were then rapidly rising prices.

The real estate market has been weakening since early this year, with transactions declining across the country and prices falling in some major cities such as Shenzhen, forcing some domestic steel firms to cut their output.

China’s urban property prices rose 3.5 per cent in September from a year earlier, down from an annual increase of 5.3 per cent in August.

PROPPING UP GROWTH

Real estate investment is the second-largest contributor to the country’s urban fixed-asset investment, which is a major driver of the overall economy.

The government is focusing its efforts to revive the property sector on enabling poorer people to buy homes. Many of its tightening measures in the past have been aimed at stemming the construction of luxury housing and speculation.

The State Council also said last week that China needed to build more affordable housing.

To that end, the government may launch a 1 trillion yuan (US$146 billion) fund to build houses for poorer citizens, the Chinese-language China Business News reported on Wednesday.

The finance ministry gave its formal blessing to local governments to roll out their own policies to encourage house purchases.

More than a dozen cities, including Shanghai, Hangzhou and Nanjing, have already enacted such measures, including offering cash subsidies for home buyers and lowering taxes and fees for developers.

Besides the property-related policies, the ministry said it would take a number of other steps to help the disadvantaged, including setting aside more than 40 billion yuan for the education of poor students and those from earthquake-hit areas.