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Amidst signs that the tepid rebound in prices is stalling, China’s central bank has announced further measures designed to support its housing market.
Overnight the PBOC said that it will allow lenders to cut the minimum mortgage down payment for first-home buyers from 25% to 20%, taking the required level to the lowest level ever.
Alongside the sweetener delivered to first-time buyers, the PBOC also lowered the minimum down payment for those looking to purchase a second home, dropping the rate by 10 percentage points to 30%.
“The eased requirements will be for buyers in areas without the purchase restrictions that are applied in some of the biggest metropolitan areas such as Beijing and Shanghai,” the bank said in a statement.
The relaxed restrictions on home purchases, in conjunction with six interest rate cuts delivered by the bank since November 2014, is the latest attempt to clear mounting stockpiles of unsold property in smaller Chinese cities, something that has pressure property prices and led to a sharp slowdown in the nation’s construction sector.
As the chart from CBA reveals below, property prices in smaller Chinese cities have grossly under performed those in larger cities over the past year.
CBA China house price change by tier dec 2015Vivek Dhar
By median value, house prices rose by 1.4% in large tier one cities in December, outpacing a gain of 0.3% for smaller tier two cities and flat growth in smaller tier three and four cities.
“This is clearly in line with the ‘destocking’ theme in the property market,” Zhou Hao, an analyst with Commerzbank AG in Singapore told Bloomberg. “We believe that the relaxation of mortgage policy will somewhat help accelerate the destocking process in the lower-tier cities.”
According to data recently released by the China’s National Bureau of Statistics, unsold home inventories across the nation hit a record 686.3 million square meters as at the end of October, up 17.8% on the levels of a year earlier.
The chart below from Deutsche Bank reveals the ballooning level of unsold housing inventorywithin the nation over the past two years.
China unsold property inventory DB Jan 2016Deutsche Bank
The growing property glut has also created tough conditions for Chinese property developers.
According to the state-run People’s Daily newspaper, 15 Chinese real estate companies projected a loss for 2015, accounting for nearly 30% of developers that have already released their preliminary earnings reports.
Alongside the 15 firms that reported an operating loss, 23 indicated that their profitability had declined compared to a year earlier.
The deterioration in profitability followed a sharp deceleration in Chinese real estate investment in 2015. It grew by just 1%, well below the 10.5% pace seen a year earlier. 
While some believe that the relaxation of rules will help clear mounting inventories, not everyone shares that view. 
“Most of the home glut, which the government aims to clear, is in small cities. But buyers in small cities don’t typically use high mortgage leverage,” Du Jinsong, a Hong Kong-based analyst at Credit Suisse Group told Bloomberg.
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Read the original article on Business Insider Australia. Copyright 2016.