China’s property market is facing a severe crisis as sales by the country’s largest developers fell 34% in August from a year earlier, and Country Garden Holdings Co. — once the nation’s largest by sales — is on the brink of default. The real estate slump has increased dangers to the nation’s financial system and threatened Beijing’s 5% growth target. To halt the slide and shore up its ailing economy, China has unleashed a slew of measures ranging from fiscal incentives to mortgage easing. Here are the details of China’s rescue plan for its property market.
Fiscal Incentives: Tax Rebate for Home Upgraders
The Ministry of Finance on Aug. 18 extended personal income tax rebate for households upgrading their apartment until the end of 2025. This policy aims to encourage existing homeowners to sell their old properties and buy new ones, thus boosting the demand and supply of the housing market. The tax rebate is calculated based on the difference between the purchase price and the sale price of the old property, and can be deducted from the taxable income of the household.
Mortgage Easing: First-Time Buyer Policy Expanded
Banks no longer disqualify those who have a mortgage record — even if they’ve fully repaid — as a first time buyer, as long as they don’t own a property. This policy was announced by the central bank on Aug. 30 and followed by big cities including Guangzhou and Shenzhen. The policy is expected to benefit millions of potential homebuyers who have previously borrowed money to buy a property but have sold it later. As first-time buyers, they can enjoy lower downpayment ratios and interest rates than second-time buyers.
Home-Loan Cuts: Interest Rates Negotiable for First-Time Buyers
First-time homebuyers can renegotiate their mortgage interest rates with banks from Sept. 25, the central bank said Aug 31. The policy allows first-time buyers to lower their interest rates to the level of the benchmark lending rate set by the central bank, which is currently 3.85% for loans with a maturity of more than five years. Previously, banks could charge up to 20% above the benchmark rate for first-time buyers. The policy is expected to reduce the financial burden for first-time buyers and stimulate their demand for housing.
Downpayment Reductions: Floor Lowered to 20% for First Homes
Beijing cut the floor of the downpayment ratio across the country to 20% for first-time home buyers and 30% for second purchases on Aug 31. The policy gives local governments more flexibility to adjust their downpayment requirements according to their market conditions. Previously, the floor was 25% for first homes and 40% for second homes. The policy is expected to make it easier for homebuyers to enter the market and increase their purchasing power.
Urban Renewal: Support for Old Villages Redevelopment
The State Council announced redevelopment support for old villages within mega cities on Aug. 31. The policy encourages local governments to renovate old villages with poor infrastructure and living conditions, and provide affordable housing for low-income residents. The policy also allows local governments to use land sales revenue to fund the redevelopment projects, and grants preferential tax treatment for developers involved in the projects. The policy is expected to improve the quality of urban housing and increase the supply of land for residential development.
These are some of the major measures that China has announced to save its property market from further deterioration. The policies have drawn mixed reactions on whether they will be sufficient enough to instill confidence in the economy and spur growth. Some analysts believe that these measures are only temporary relief and not fundamental solutions, while others argue that they are necessary steps to stabilize the market and prevent a hard landing.