Although the mainland property market is showing signs of recovery, the central government is leaving nothing to chance and continues to unveil further stimulatory measures because of the importance of the sector to the country's overall economic recovery, analysts say. On April 30, the State Council announced it would relax the required minimum ratio of capital against borrowed funds for the development of residential projects and several other sectors. For the property sector, this is the first such relaxation since the measure on minimum capital was introduced in September 2004. Developers were previously required to fund new projects with a minimum of 35 per cent of their own capital while securing financing for the balance from the market. Details of the planned relaxation have not yet been released, but market watchers are expecting the capital ratio to be cut to 30 per cent in response to easing credit markets and a desire by the government to stimulate development. 'This is a pre-emptive measure to avoid supply becoming unable to meet demand,' said Nicole Wong, the head of Hong Kong and China property research at brokerage and investment bank CLSA. Bank lending on the mainland has been restricted over the past two years through various measures, including the raising of banks' required reserve ratios and increases in interest rates, as policymakers sought to prevent the property market from overheating. But Ms Wong said the measures would lead to a new supply shortage should demand continue to pick up. In a recent report, Citi Investment said the time needed to digest the entire housing inventory in Beijing, Shanghai, Guangzhou, Shenzhen and eight other leading second-tier cities had declined to 9.2 months from 14.8 as of February because of improving sales in March and April. Ms Wong said the new policy on capital could help increase housing supply and prevent a price bubble from forming because developers might have been tempted to raise selling prices aggressively in anticipation of tightening supply. The policy measure suggests Beijing is intent on promoting a healthy transaction volume and avoiding price rises driven by short supply. In addition to being a necessary measure to avert a potential supply bottleneck, it is a significant move from the macroeconomic perspective, analysts say. Liu Ligang, the chief economist for China at Banco Bilbao Vizcaya Argentaria, believes the move is intended to encourage developers to take on more residential investment since this is vital to the country's economy. Investment in the sector, which used to constitute more than 30 per cent of China's total investment, had dropped to about 10 per cent in March, Mr Liu said. Lee Hing-yin, a director for research and advisory at Colliers International's East China division, believes the government intends to help sustain fixed-asset investment in the context of supporting overall economic growth - for which Beijing is targeting 8 per cent this year - given that bank borrowing is one key determinant of investment. 'The increase in bank borrowing can also trigger a larger multiplier effect on other economic activities' as well as boost developers' returns on equity, Mr Lee said. It would be some time before this led to a new mood of strong expansionism by developers, analysts said. 'This measure will have some impact on real estate investment but developers will remain cautious as they want to continue to digest existing unsold housing stock,' Mr Liu said.