The Beijing Municipal Commission of Housing and Urban Development, a department under the municipal government responsible for providing and regulating housing, said on Thursday that it is lowering the down payment ratio for first homes to 30 per cent from at least 35 per cent previously, and to 40 per cent from at least 60 per cent for buyers of second homes.

Shanghai’s municipality unveiled its own down payment ratio cuts just hours after Beijing’s announcement. “The policy changes will become effective from December 15 to better cater to residents’ housing demands and their need to upgrade living conditions,” the city’s government said in a statement on its WeChat account.

Earlier, the southern city of Guangzhou took the lead in August in lowering down payment requirements, cutting rates for first-home buyers to 20 per cent from 30 per cent. Down payments for buyers who already owned property in the city were slashed to 40 per cent from at least 70 per cent.

“Beijing’s policy change around home purchases has important implications for the whole country,” said Wang Xingping, senior analyst of companies at Fitch Bohua, a wholly-owned subsidiary of Fitch Ratings.

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“As one of China’s four first-tier cities, Beijing has the strictest rules around home purchases. The cuts on down payments and new mortgage rates are a first during this policy-easing cycle.”

New home prices across 70 cities also dropped, declining by 0.38 per cent in October compared with the previous month, according to data from the National Bureau of Statistics. This was their sharpest decline since February 2015.

According to the new measures introduced in Beijing, homebuyers will see the rates of their new mortgage loans being reduced to as low as 0 basis points over the loan prime rate (LPR) for first homes, compared to 55 basis points over the LPR earlier. Meanwhile, second-home buyers will see their mortgage rates being cut to as low as 55 basis points over the LPR, down from 105 basis points earlier. The cuts will take effect on Friday.

The LPR is the lending rate that China’s commercial banks charge to their highest quality customers. While the one-year LPR is a medium-term lending facility tied to corporate and household loans, the five-year rate is a reference for mortgages.

In another move to relax restrictions around home purchases, authorities in Beijing also restored the maximum number of years allowed for homebuyers to pay off their mortgage loans to 30 years, which was cut to 25 years in 2017 to cool off an overheated housing market.

Beijing, Shanghai ease mortgage rules to lift housing market

Since there is still sizeable demand for housing in first-tier cities, the new measures will benefit homebuyers by reducing costs, while showing the Beijing municipal government’s determination to support the city’s property market, Fitch Bohua’s Wang said.

According to data compiled by the Lianjia Research Institute in Shanghai, mainland China’s financial and commercial hub, recorded 14,100 transactions of lived-in homes last month, down 13 per cent from the same period in 2022. The total transaction value slumped 16 per cent year on year to 47.2 billion yuan.

Homeowners have to offer discounts of up to 20 per cent to attract buyers, according to You Liangzhou, the owner of Baonuo, a Shanghai-based property agency.

“The local home market may become bearish if no further support policies are introduced to shore up investor confidence,” he said.

“Lower down payment ratios and lending rates can be of some help to the market, but removal of home purchase restrictions is desirable.”