China’s property crisis: Shenzhen cuts down payments for second-home buyers, joining fray of cities trying to revive demand

Authorities are also scrapping a measure restricting the scope of buyers who can enjoy the lower down payments
It will not be enough ‘to drive a meaningful sales recovery,’ says Cynthia Chan at Daiwa Capital Markets

China property

Yulu Ao

Published: 11:00am, 23 Nov 2023

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Authorities in Shenzhen, China’s technology hub, are reducing the down payment required from people buying a second home, joining a fray of big cities paring back restrictions in a bid to revive the flagging property market.

They are also scrapping a measure that had restricted the scope of buyers who can enjoy lower down payments.

The easing measures, which include lowering the down payment ratio for second houses to 40 per cent of the value of the property from as much as 80 per cent, take effect from Thursday, according to a notice from the Shenzhen branch of the People’s Bank of China.

Shenzhen is the second tier-one city in China to lower the down payment ratios for second houses. In September, Guangzhou lowered the down payment ratio to a minimum of 40 per cent from at least 70 per cent.

At the same time, Shenzhen’s housing authority scrapped the threshold below which homebuyers qualified for lower down payments, enabling more people to benefit.

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The Housing and Construction Bureau changed the definition of “ordinary housing”, or non-luxury homes, that qualify for lower down payments. In the past, only homes valued at less than 7.5 million yuan (US$1.05 million) fell within this category, making them eligible.

“The easing measures could encourage home upgrades and spur demand for second homes,” said Yan Yuejin, director of the Shanghai-based E-house China Research and Development Institute.

Before today’s adjustment, the down payment ratio was 70 per cent for an “ordinary home” and 80 per cent for the rest.

The savings are considerable. For example, someone buying a second house valued at 5 million yuan will now only have to pay 2 million yuan up front versus 3.5 million yuan previously – a 43 per cent reduction in down payment costs.

For someone buying a more expensive property, the savings up front are even greater. The down payment for a 10 million-yuan home would now be 4 million yuan, down from 8 million yuan.

The easing measures come as China’s residential property market continues to slide into the doldrums. New home prices in Beijing, Guangzhou and Shenzhen recorded month-on-month price declines ranging from 0.4 per cent to 0.7 per cent in October, while second-hand home prices in tier-1 cities fell 0.8 per cent in October versus a 0.2 per cent increase in September.

“Shenzhen is stepping up measures to boost housing demand, but we believe these are not sufficient to drive a meaningful sales recovery,” Cynthia Chan, an analyst at Daiwa Capital Markets in Hong Kong, wrote in a report. She cited sluggish sentiment among buyers amid an economic downturn and continually falling home prices.

“On a more positive note, we note the government, at both state and local level, accelerated policy support for the sector in recent weeks which, in our view, underscores that policy makers are growing anxious about the sector turmoil evolving into a systematic crisis,” Chan said.

“We believe this will pave the way for stronger measures in the near term.”

Other large cities on the mainland have taken steps recently to spur demand in their struggling property markets. Authorities in Beijing and Shanghai said in September they would let first-home buyers enjoy preferential mortgage rates regardless of their previous credit records.

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