Chinese housing and financing regulators have recently delegated the decision-making power to city-level governments regarding whether families without property ownership within a region should be considered as first-time homebuyers eligible for advantageous mortgage terms. This move aims to invigorate the domestic real estate market and cater to the growing demand for improved housing standards.
Empowering city-level authorities
The Ministry of Housing and Urban-Rural Development, the National Financial Regulatory Administration, and the People’s Bank of China jointly issued a circular endorsing the implementation of modified mortgage policies. The key feature of this circular is the provision that individuals and families with no registered property in a specific region can be treated as first-time homebuyers for mortgage purposes, provided local-level governments opt for this approach. In China, first-time homebuyers generally enjoy reduced mortgage rates and lower down payments, compared to other buyers.
Potential benefits and rationale
Housing experts view this policy adjustment as a catalyst for harnessing the latent potential of the Chinese real estate market while addressing the populace’s aspiration for superior housing standards. By granting first-time homebuyers access to favorable mortgage conditions, the cost of acquiring larger and better-quality residences could be diminished. This, in turn, could align with the demand for improved living conditions.
Tailoring policies to local realities
The circular underlines that cities possess the flexibility to adapt their housing policies for first-time homebuyers based on a comprehensive evaluation of the prevailing market dynamics. This recognition of regional differences acknowledges that areas with a surplus of available homes should leverage policy adjustments to stimulate demand. These measures could encompass the reduction of mortgage rates and down payments, thus encouraging more individuals to enter the housing market.
Balancing policy adjustments
Experts emphasize the need for a cautious approach when implementing mortgage policy adjustments, particularly in first-tier cities where housing demand and supply are relatively balanced. While the intention is to invigorate the market, it is imperative to maintain a balance between housing affordability and financial stability.
Further policy considerations
The chief researcher of Merchants Union Consumer Finance Co Ltd, Dong Ximiao, asserts that the announced modifications will reduce costs for homebuyers and drive market demand. To ensure successful implementation, detailed clarifications are crucial. An important question that arises is whether owning property in suburban areas of a city would disqualify individuals from being considered first-time buyers. Dong Ximiao also suggests broader adjustments to real estate policies, such as relaxing purchase and loan restrictions, as well as reducing mortgage rates for second-home buyers. These measures could collectively contribute to an enhanced market environment.
Extension of favorable tax policies
In addition to the mortgage policy changes, the Ministry of Finance announced an extension of certain tax incentives for homebuyers. The ministry, in collaboration with tax and housing regulators, will refund a portion or the entirety of personal income tax on home transactions to individuals who sell their old homes and purchase new ones within the same directly administered municipality or prefecture-level city. This tax refund policy is slated to be effective from January 1, 2024, to December 31, 2025.
The delegation of authority to city-level governments regarding favorable mortgage terms for first-time homebuyers reflects an effort to bolster the Chinese real estate market and satisfy the populace’s yearning for upgraded living conditions. While this move holds the potential to stimulate demand and drive economic growth, the careful calibration of policies according to regional housing dynamics is essential. With further adjustments and clarifications, China’s real estate market could witness a revitalization that benefits both aspiring homeowners and the broader economy.