China set to ease property policy by year-end

By Langi Chiang - Analysis

BEIJING (Reuters) - Fresh from easing monetary policy for the second time in under a month, China is gearing up to loosen its grip on the property market as it strives to safeguard growth in the face of global financial turmoil.

Beijing may allow residents to borrow more under a subsidized mortgage scheme and cut transaction taxes to spur property purchases. It may also give developers more time to pay various fees and taxes to ease their cash-flow strains, analysts said.

"The central government will issue a nationwide policy-easing package toward the end of this year as the downturn in the property market deepens," said Shi Lei, an analyst with TX Investment Consulting Co in Beijing.

Without waiting for a national plan, more than a dozen cities across China have already relaxed policies out of concern that a slack real estate market will bite into their tax revenues and further weigh on already weakening local economies.

The China Real Estate Association has requested formal permission from the State Council, or cabinet, for local governments to take unilateral action.

The group has also asked for measures to encourage people to move up the property ladder, according to media reports.

As part of cuts to China's benchmark lending rates on Wednesday, the central bank lowered the rate on special mortgages for tenors of over five years from 5.13 percent to 4.86 percent, well below the rate on ordinary loans of 7.47 percent.

"China will continue to roll out other measures in a clearer effort to support the stable and healthy development of its real estate sector," said Lu Zhengwei, chief economist of Industrial Bank in Shanghai.

CUT-PRICE LOANS

Special mortgage rates are available to participants in a nationwide housing scheme funded by contributions from employers and employees.

The amount households may borrow under the scheme varies from city to city but is usually capped at several hundred thousand yuan. Raising the limit is an option that is under active consideration by cities including Nanjing.

"In my personal view, the central authorities should have relaxed policy long ago, considering the importance of the property industry to our economy," Lu said.

Sales have been sluggish, and prices in some major cities such as Shenzhen have plunged by up to 40 percent since Beijing intensified a campaign a year ago to curb excessive price rises and to encourage the construction of more-affordable homes.

Many experts fear that, without fresh stimulus, the property market will sink further and drag down the economy.

Real estate accounts for about 24 percent of China's urban fixed-asset investment and is a crucial driver of industries such as steel, furniture and household appliances.