Chinese Government Acts to Bolster Home Prices

Published on Author spencerb15

The Chinese government has announced a decrease in the requirements to obtain a mortgage. They reduced the minimum down payment of a loan from 60-40%. This along with corresponding tax cuts are hoped to stem the fall of housing prices. In addition, those who are selling homes no do not have to pay a business tax if they have owned the home for more than two years. This is a fall from the old five-year minimum.

The real estate market makes up 15% of China’s economy, and officials are very wary of a drop in prices. In February, there was a relatively sharp decline in prices. This government adjustment was sharper than most experts expected and improved the market temporarily.

Many investors are unsure that the actions would have the intended effect in the long-run however. This doubt arises because people are unsure if banks will follow the new measures or keep the status quo. If China’s real estate prices continue to fall, further action may be needed to bolster the market.


One Response to Chinese Government Acts to Bolster Home Prices

  1. That large down payments are required is important for stability of the financial system. Unlike the US, purchasers have significant equity, and so will still be net-asset-positive (“upside”) on their mortgages even in the face of a substantial drop in prices. That wasn’t true in the US, where LTV (loan-to-value) ratios hit 100%, so any drop in prices rendered home “owners” underwater. (Transaction fees, at around 10%, imply you need some equity to be able to pay off a mortgage by selling a house even when prices don’t fall.)