China announced late on Wednesday an array of policies, including tax exemption and mortgage deposits reduction, to boost the falling real estate sector amid the global economic downturn.
The People's Bank of China, the central bank, said in a website circular late on Wednesday that the down payment for an initial purchase of housing with a floor space of more than 90 square meters for self use could not be less than 20 percent. Previously, the figure was 30 percent.
The new practice will take effect Oct. 27.
The interest rates on a mortgage for first time home buyers would be cut by 0.27 percentage points to boost domestic consumption. The floor for interest rates would be lowered to 70 percent of the central bank's benchmark rate, the central bank said.
It said the adjustment was made to offset the negative impact brought about by the widespread global financial crisis and to stimulate domestic consumption amid the world economic slowdown.
The new policy demonstrated the central government's determination to stabilize the property market and to maintain economic growth, said Hua Wei, a professor with the Shanghai-based Fudan University.
The tax incentive can not be deemed as only to stimulate the sector of real estate, it is also part of the macro economic policy adjustment, according to Bai Jingming, deputy director of the Fiscal Science Research Institute of the Ministry of Finance.
China's economic growth slowed down to 9.9 percent in the first three quarters as the spreading credit crisis dampened foreign demand for Chinese goods.
The stability of the property sector is significant for the national economy as the sector contributes a quarter of domestic fixed asset investment.
The sector, once overheated, plunged into recession as the government had limited bank loans for property developers in a move to restrain the runaway housing prices.
Property prices in major Chinese cities increased 3.5 percent in September from a year ago, the slowest pace in more than three years.
People's tendency to buy houses tumbled to 10-year low. Insiders said the hefty transaction costs did not restrain the property speculative activities, but refrain consumers from buying.
To facilitate house purchase for mid-and-low income families, the Ministry of Finance said that starting from Nov. 1, the stamp tax on property purchase and the value-added tax of land on property sales would be lifted. The contract tax would be reduced to 1 percent on purchase of the first unit of housing with a floor space of no more than 90 square meters.
The fiscal measures were unveiled shortly after the interest rate cuts, which showed the government's resolution to sort out the current problem, Hua said.
Bai Jingming said the new policy would coordinated with the loosening monetary policy to help stabilize the property market and the national economy.
The ministry said the construction of the low-rental housing would be accelerated and the subsidies for low-income families would be boosted. Living allowance for the people affected by the Sichuan earthquake would also be increased.
Those moves aimed to ensure the basic living of the low-income households and raise people's expectation for the economy. It also intended to promote the healthy and stable development of the economy by fueling domestic consumption, the ministry said on its website.
China has cut interest rates twice in one month, and loosened the lending restrictions to prevent the world's fourth largest economy from sliding.
It also raised the export rebates to boost export, which is the driving force of the national economy, as the trade surplus shrank 2.6 percent in the first three quarters from a year ago sapped by weakening foreign demand.
(Xinhua News Agency October 22, 2008)