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A sales assistant cleans a washing machine at an electrical appliance shop in Wuhan, Hubei province. Photo: Reuters

Why China’s easier home mortgage down payment rule is a boon for white goods makers

First-time home buyers can now put down a minimum 20 per cent deposit

Consumers

The latest reduction of the minimum down payment for home purchases will boost home sales in most parts of mainland China and result in higher home appliance demand with a six-month time lag, analysts say.

“Should property sales in the lower-tier markets be stimulated by the latest [minimum] home down payment cut, we believe it would generate better home appliance demand in six months’ time,” Citi analysts said in a note.

Trawling through historical data since 2007, they said China’s home appliances sales and property sales were positively correlated, with home appliance sales lagging behind by six months.

Last Tuesday, Beijing announced a reduction in the minimum down payment for house purchases to 20 per cent from 25 per cent in most cities, except those with home purchase restrictions including Beijing, Shanghai, Shenzhen and Guangzhou.

First-time buyers can now put down a minimum 20 per cent deposit, while those with an outstanding mortgage need to pay at least 30 per cent, down from 40 per cent, according to the People’s Bank of China.

“Makers of big-ticket home appliances are quite sensitive to property market policies, which have direct impact on 20 to 30 per cent of their annual sales,” China International Capital Corp analyst Guo Haiyan said in a note.

Citi analysts expect Hong Kong-listed washing machines and water heaters maker Haier Electronics to benefit the most, followed by Shanghai-listed sister firm Qingdao Haier, which makes refrigerators and air-conditioners, Hong Kong-listed television maker Skyworth Digital and Shenzhen-listed home electronic appliance maker Midea Group.

“Home appliance players with extensive rural sales network and high revenue contribution from low-tier [property] markets could benefit more,” they said.

Haier Electronics sourced around 78 per cent of its sales last year from “third- and fourth-tier” property markets, Citi analysts said, compared with 65 per cent for Qingdao Haier and Skyworth, and 50 per cent for Midea.

They also said a potential expansion to others parts of the mainland of a subsidy programme in Beijing for the purchase of energy efficient appliances could also boost sales.

Under the three-year programme, which began in November, buyers of air-conditioners, washing machines, refrigerators, televisions and water heaters that meet “grade-1” energy efficiency standards can enjoy subsidies amounting to 13 per cent of the retail price, while those who buy “grade-2” standards are entitled an 8 per cent rebate.

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