China is struggling to revive its slumbering property market, reversing some of the steps it took to keep prices from rising too fast five years ago.
OnMarch 30, government agencies sharply reduced down payment requirements for buyers of second homes, effectively scrapping policies put in place by former Premier Wen Jiabao in 2010.
The about-face on property investment is one of a series of new loosening measures aimed at stemming the slide in economic growth.
OnSunday, the People's Bank of China (PBOC) lowered the reserve requirement ratio (RRR) of the nation's banks by a full percentage point to pump more liquidity into the economy after cutting the RRR by a half-point two months ago.
The real estate sector is seen as a key target for stimulus.
Under new mortgage rules announced by the China Banking Regulatory Commission and the Ministry of Housing and Urban- Rural Development, required down payments for most second homes dropped to 40 percent from the previous level of 60-70 percent, state media said.
The down payment ratio for second home buyers using public housing funds fell from 60 to 30 percent, while minimums for first-time buyers were cut from 30 to 20 percent.
The breaks will "support residents' demand to improve housing conditions and promote steady and healthy development of the housing market," the agencies said in a statement cited by the official Xinhua news agency.
On its face, the explanation may make little sense with regard to second home buyers, whose housing conditions have already improved enough to leave them with extra cash to invest in other residences.
Easing exemptions on taxes
On the same day, the Ministry of Finance and the State Administration of Taxation issued a similar statement, announcing an eased exemption from the profit tax on home sales, reducing the holding period from five to two years.
The coordinated measures are a sign of how much has changed since Wen ordered higher down payment requirements and taxes to stem speculation and runaway prices that made housing unaffordable for first-time buyers.
In 2010, the State Council, or cabinet, first ordered an increase in the minimum down payment for second homes from 20 to 40 percent, subsequently raising it to 50 percent later that year, 60 percent in 2011 and 70 percent in some cities in 2013.
The crackdown was sparked by double-digit annual price hikes and complaints that first-time buyers with average salaries would have to save for up to 50 years to afford an apartment in Beijing.
Flash forward to 2015, when home prices extended their slide through March after dropping by an average of 7.8 percent last year, according to National Bureau of Statistics
(NBS) data.
New home prices fell In 50 of 70 surveyed cities in March, fewer than the 66 in February and 64 in January, the NBS reportedSaturday.
But March marked the seventh straight month of increasing year-on-year price declines as average prices dipped 6.1 percent, The Wall Street Journal said.
Commercial housing sales in the first quarter plunged 9.2 percent in area terms from the year-earlier period, the NBS reported earlier.
China's property market, which boomed through the hard times of the global recession, is now seen as a drag on economic growth, which slipped to a 7-percent rate in the first quarter from 7.4 percent in all of 2014.
Regulators have shown concern that price drops will add to deflationary pressures that could throw the economy into a stall.
Default risks may also be rising from indebted developers in distress.
Green light for buyers
At the close of China's annual legislative session in March, Wen's successor, Premier Li Keqiang, told a press conference that "the government encourages people to buy homes for their personal use or buy second homes," Xinhua reported.
The green light for second home buyers marked a reversal of the government's earlier policy, although first-tier cities like Shanghai have kept curbs on multiple home purchases that were ordered at the height of the boom.
The new mortgage terms signal rising concern about slowing economic growth.
Speaking in January at the World Economic Forum in Davos, Switzerland, Li ruled out interventions in the real estate market, China Daily reported at the time.
Li argued that demand would remain "huge" because of the government's urbanization plans to move rural dwellers to cities.
That confidence seemed to vanish this month with the announcements of weaker trade and economic figures.
"China must take effective steps to tackle downward pressure facing the economy, otherwise job creation and people's income will be affected and it will be difficult for China to achieve a better quality and more efficient economy," Xinhua cited Li as saying onApril 14.
Reactions to the new policy on second homes have been mixed.
Zhang Dawei, chief analyst at Hong Kong-based Centaline Property Agency, said the measures would spur real estate demand by as much as 30 percent in some cities in the second quarter, China Daily reported.
Others were less hopeful about reversing price drops because the stock of unsold homes remains high.
"It is unlikely that the policies will immediately bring any big changes in home prices as there is still a lot of inventory," Tan Huajie, senior vice president of home builder China Vanke, told The South China Morning Post.
Days after the cuts were announced, state media reported a surge in sales of apartments. But there were questions about how long it would last.
China Daily cited a "wait-and-see attitude" among property shoppers who expect easier terms to come.
Kent Troutman, a research analyst at the Peterson Institute for International Economics in Washington, said investors may not be as responsive to signals of easing in the property market because conditions have changed since the boom.
What was once seen as a preferred asset class has faced competition from a high-flying stock market, while the overall downturn in economic growth reflects weakened demand.
"Investors now are looking at the slowing velocity of the Chinese economy and saying it's not really worth it to invest in housing anymore," Troutman said.
OnFriday, the China Securities Regulatory Commission warned investors against selling property to buy stocks, while placing new curbs on margin trading, or buying stocks on credit.
The moves drove stock futures down by over 5 percent. OnMonday, the Shanghai Composite Index fell 1.6 percent.
Repeated mortgage policy changes
But even with cuts in down payments, the minimums for new mortgages remain relatively high.
"It's coming down, but from a very restrictive level," said Troutman. "The big question in my mind is where's the marginal demand going to come from," he said.
There are also doubts about the longer-term effects of a mortgage policy that has changed five times in five years.
As far back asJanuary 2012, The Wall Street Journal quoted analysts as warning about risks of "possible over- tightening of the (property) sector."
The government's u-turn on mortgage rules suggests those fears may have come true.
Aside from concerns about over-regulation in the past, there are questions about whether the government should be regulating second home purchases as an economic stimulus at all.
During the building boom, investment in unoccupied dwellings was associated with the excesses of big energy- consuming industries, including steel, cement, aluminum and flat glass, all of which are now saddled with overcapacity and price pressures.
By returning to incentives for second home purchases, the government seems to be turning away from its energy conservation efforts and its "war against pollution."
Troutman said the government is trying to deal with contradictions while balancing short-term and longer-term risks.
"In the short term, we're definitely going to continue seeing incremental easing to make sure we don't see a crisis in the real estate market or the financial sector," he said.
But the government may have a hard time calibrating its revised policy so that it only soaks up the huge backlog of unsold housing units without sparking another surge of new building.
A study by the Survey and Research Center for China Household Finance in 29 provinces, cited by Bloomberg News, found an urban vacancy rate of 22 percent in 2013.
But pressures for more development incentives are likely to come from the industrial and construction sectors before inventories are reduced.
For the past several years, the government has been trying to divert development interests into construction of affordable housing for China's urbanization drive.
Although the building plans for lower-priced units have met targets, the main interest of investors has been in the greater profit margins of higher-end homes.
Last December, the housing ministry said China would start construction of 7 million affordable apartment units in 2015.
The government estimates that 18 million rural residents moved to cities last year.