Central government steps up property rescue efforts

The cavalry is finally coming to rescue the beleaguered property sector.

On Friday, the central bank (PBoC) announced new financial incentives for people to buy homes, most notably by:

• Scrapping the mortgage rate floor for both new and second-hand homes nationally
• Cutting the minimum down payment ratio for first-home buyers from 20% to 15% and for second-hand homes from 30% to 25% – the lowest rates since mortgages were introduced in 1992

Also on Friday, during a national videoconference on the property sector, Vice Premier He Lifeng pledged the central government’s support for local governments’ property buyback plans.

• He said this includes support for both the purchase of unsold properties and unused residential land.

On the back of He’s announcement, the PBoC announced the creation of a new RMB 300 billion relending facility for local state-owned enterprises to purchase unsold properties.

• The facility will dish out credit at a rate of 1.75%.
• The PBoC said it expects the move to result in banks extending an additional RMB 500 billion in credit to the scheme.

Get smart: RMB 500 billion isn’t enough to digest China’s unsold property stock, but it will go a long way toward stabilizing prices in many cities.

• The hope is that buyers will return to the market once property prices stabilize, and be further encouraged by cheaper loans and lower down payments.

Get smarter: These drastic measures show that the central government is no longer willing to tolerate the slumping property market.

• More policy support will be forthcoming if this latest package fails to arrest the price slide.