China Focus: Chinese province scraps home-buying curbs to speed up de-stocking in smaller cities

Northern Chinese province Shanxi eased rules on home purchasing, becoming the fourth province to undo previous curbs in hopes of slashing more property inventory in China's lower-tier cities.

The provincial government said it has removed restrictions for non-local resident's access to home mortgages, while downpayments were reduced to 30 percent of home price and the floor of mortgage rate dropped to 0.7 times of the benchmark.

Second-time home buyers who have paid mortgages in full are also entitled to these new relaxed rules.

It also mandated that local banks need to process home mortgage requests within 30 days.

Authorities also removed the previous requirement that homes less than 90 square meters need to account for at least 70 percent of total floor space to diversify property offerings to meet demand for upgrading to better homes.

Three other Chinese provinces -- Gansu in northwest China, Anhui in the east and Sichuan in the southwest -- have issued documents scrapping previously imposed home-purchase restrictions.

"Overall, the removal of home-buying restrictions should provide support for the sector. But the problem with China's lower-tier market is lack of demand and that limits the impact these policies will have on the local property market," said Matthew Kong, director of corporate ratings at Standard & Poor's.

The province's new easing measures came after Chinese leaders said the property sector needs to slash inventories to achieve sustainable development last week. The State Council, China's cabinet, also said the household registration system, or 'Hukou', needs to be reformed in order to stimulate property demand.

Authorities began easing measures last year, including interest rate cuts and reducing downpayments to stabilize China's property market.

Such measures have led to growing divergence between the country's top and lower tier cities. While property sales recovered in cities like Beijing, Shanghai and some provincial capitals, growth in smaller cities remains subdued.

According to UBS, home inventories in China's third-tier cities can be depleted in 23.4 months, compared with 13.7 for second-tier cities and 7.9 for major cities.

Ding Xiao, property analyst at UBS, said high inventory levels in third-tier cities suggests that more policy support is needed and that the destocking process will take a long time.

Government support for the property sector will likely to continue going forward given the sector's significant contribution to overall GDP growth, said rating agency Standard & Poor's.

High inventory levels have dampened property developers' enthusiasm to build new homes. The slowdown in property investment has dragged down China's economic growth, which dipped to a six year low of 6.9 percent in the third quarter.

Real estate investment has been on a steady decline since this year, dropping below 5 percent from around 20 two years ago. Endit