2nd LD Writethru-China Focus: China relaxes mortgage rules for second home buyers

Chinese authorities on Monday decided to relax mortgage rules for second home buyers to address demand for improved housing and lift the sagging housing market.

Minimum down payment levels for second home buyers in general will be lowered to 40 percent from the current 60 to 70 percent, said a statement jointly published by the central bank, the Ministry of Housing and Urban-Rural Development, and the China Banking Regulatory Commission.

Meanwhile, minimum down payments for second home buyers using public housing funds will be cut to 30 percent from the current 60 percent; for first home buyers using public housing funds, the minimum down payment will be reduced to 20 percent of the home's value, down from the current 30 percent.

Public housing funds are drawn from a reserve fund which urban registered employees and employers are obliged to contribute to. Employees can access the fund for home purchase loans at better rates than those offered by commercial banks.

The moves are meant to "support residents' demand for improved housing conditions and promote the steady and healthy development of the housing market," said the statement.

The Ministry of Finance also announced on Monday that sales of homes purchased over two years ago will be exempt from business tax, which is 5.5 percent of the contract price of the house.

Currently, sales of homes purchased over five years are exempt from the tax.

These latest measures came as China's property market took a downturn in 2014 after boom years that saw home prices rocket to levels out of reach for common wage earners. The cooling trend has continued into 2015, with both sales and prices falling, and investment slowing.

Zhu Haibin, J.P. Morgan China chief economist, said the measures are another step to stabilize the economy following disappointing January and February macro activity data, which indicated weak momentum in industrial output, investment, and retail sales.

The Chinese economy grew in 2014 by 7.4 percent, its lowest pace in 24 years.

According to the government work report delivered by Premier Li Keqiang earlier this month, China will stabilize housing consumption this year, raising expectations of new easing policies.

Xia Dan, a researcher at Bank of Communications, said the measures announced on Monday were stronger than expected.

"The minimum 20-percent down payment for first home buyers will significantly reduce buyers' financial burden and raise their purchasing capability," said Xia, who also expects the business tax exemption to boost transactions particularly in first and second-tier cities.

Zhu forecast further moves on monetary policy, including one more cut in reserve requirement ratio by 50 basis points in April and another 25bp interest rate cut in the second quarter, to ease financing conditions for the property market.

The central bank has cut interest rates twice since November, and it dropped the reserve requirement ratio for banks in February.

Last week, China's land and housing authorities announced measures to regulate land supply for residential buildings, asking local governments, with excessive home inventories to "significantly" reduce or halt land supply.

According to an official survey of 70 cities, new home prices dipped in 66 of the cities on a monthly basis in February. On a year-on-year basis, the prices dipped in 69 of the cities. Endi