Chinese authorities in late August released a slew of favorable policies to stimulate the real estate market.

The minimum down payment ratios for first and second home purchases nationwide have been lowered to 20 percent and 30 percent, respectively, according to a document issued by the People's Bank of China, the country's central bank, and the National Administration for Financial Regulation. The previous rates were 30 percent and 40 percent, respectively.

The criteria for identifying first-time home buyers have been adjusted. As long as they or their spouse do not own a home in the city where they wish to purchase a new home, home buyers will be considered first-time buyers when applying for a mortgage loan. Previously, however, a home buyer would have been considered a second home buyer if he or she had a record of using mortgage credit. Those who purchased mortgages at higher rates under the previous policy can negotiate a rate change with their bank.

The new policies came at a time when, as noted at a July 24 meeting of the Political Bureau of the Communist Party of China Central Committee, which consists of the Party's highest-ranking officials and decides on major issues, supply and demand in the real estate market have undergone significant changes.

With the policies in place, those who sell their existing homes and want to upgrade to a better place will enjoy favorable policies previously reserved for first-time home buyers, including lower mortgage loan rates and down payments, as well as housing tax credits. This will help ease the financial burden for these potential buyers.

This potential for a new, positive development trend in the real estate market is boosting the confidence of heavily indebted real estate companies to turn around a dire situation. In the past two years, several Chinese real estate giants, including the China Evergrande Group, Sunac and the Country Garden Group, have struggled with debt crises.

Chinese economists have expressed their concerns that risks in the real estate sector might spill over into other sectors of the economy, and called on the Central Government to enact favorable policies to support this troubled sector. The experts believe that stabilizing the property market will ultimately protect the entire financial sector—and even the entire Chinese economy.

China's real estate industry began to take off in 1998. Prior to that, most urban residents lived in apartments assigned to them by their organizations—government departments, public institutions or state-owned enterprises. In the years following 1998, real estate became one of the country's supporting industries, while housing speculation continued to drive up prices.

The real estate investment frenzy, accompanied by high levels of debt and financial leverage, led to mounting risks as well as public discontent. The 2016 Central Economic Work Conference, an annual meeting that sets the national agenda for China's economy, put forward the principle that housing is for living in, not for speculating on.

A series of restrictive policies, implemented through administrative and financial means, including restrictions on second home purchases, ensued. The refinancing of real estate developers was also put on hold. All these measures were put in place to squeeze any bubbles and hidden risks out of the market. But a stabilizing real estate market took a real hit from the COVID-19 pandemic.

The real estate industry is closely linked to cement and steel production, as well as service industries such as education and healthcare, with many multi-generational households, common in China to this day, opting to live closer to schools and medical facilities.

Stimulating the real estate market in turn stimulates these sectors and even the economy at large. At a time when China's economic growth is slowing, the government is looking to the property market to inject vitality into the economy.

The extent to which the new policy will have a positive impact on the recovery of the housing sector remains unpredictable, as most families, as stated earlier on, are already homeowners.

Copyedited by Elsbeth van Paridon 

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