China Raises Down Payment for Second Homes

By Fu Tao and Feng Zhe, Caixin

Minimum down payments for second homes increased to 50 percent, as part of an aggressive policy to counter overheating in the property market

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China’s State Council, the cabinet, has raised the minimum down payment from 40 percent of the total price of a second home to 50 percent in an effort to curb speculation in the real-estate market.

Mortgage loan interest rates must not be lower than 1.1 times of base interest rates for home buyers who have already taken mortgages. For third home purchases, the minimum down payment and interest rates are higher. The new rule marks the toughest measure to cool the property market in years. 

China introduced measures to stimulate the flagging property market in 2009, including a 30 percent discount of the interest rate for mortgage loans issued to first-time home buyers. The measures were revoked in early 2010 following China’s economic rebound in late 2009. However, the housing market continued to overheat.  

In March, housing prices across the country soared 11.7 percent from one year earlier, accelerating from February’s 10.7 percent gain, according to the National Bureau of Statistics. The March surge was the biggest since July 2005, when the statistics agency broadened sample cities from 35 to 70.

Hainan province, a tropical island popular among tourists, saw the fastest housing price gains. Prices in the provincial capital Haikou rose 64.8 percent year-on-year, while those in Sanya jumped 57.5 percent. In the same period, Beijing and Guangzhou, the capital of China’s economic powerhouse Guangdong, witnessed price surges of 12.3 percent and 20.3 percent, respectively. In third-tier cities like Jinhua and Wenzhou, hometown to China’s most renowned speculators, prices jumped over 20 percent. 

In Beijing, some banks raised the minimum down payment to 60 percent for second-time home buyers. On April 11, Liu Mingkang, chairman of China Banking Regulatory Commission, said regulators would feel relatively safe when the minimum down payment was 50 percent to 60 percent of an apartment’s total price.

The State Council has also allowed local governments to take some emergency measures to curb speculation in housing markets. New property taxes are being discussed and may be unveiled soon.

In an April 14 meeting presided by Premier Wen Jiabao, the State Council reiterated its resolve to increase land supply for residential housing, subsidized housing and low-cost apartments. Idle land will be reclaimed by the government to build low-price apartments. The cabinet also ordered local governments to allocate 70 percent of total land supply for low-cost apartments. 

The volume of mortgage loans issued saw explosive growth last year due to the overheating property market in the latter half of 2009. In Shanghai, loans to property developers and homebuyers accounted for 50 percent of total new credit in March, according to the China Banking Regulatory Commission’s Shanghai Bureau.