Moody’s Sees Lower Down-Payment Levels Boosting China Developers

China’s decision just before the holiday to lower down-payment requirements on mortgages is already paying off for the country’s property developers, and is expected to ease access to credit for the sector.

After the People’s Bank of China announced on September 30th that it was lowering down-payment requirements for first-time homebuyers from 30 percent to 25 percent, Moody’s Investors Service indicated this week that the consumer borrowing boost is credit positive for Chinese property developers, as it is likely to stimulate more housing sales.

This is the third time this year that China has rejigged down-payment rules to rekindle its slowing housing market, and reflects the government’s determination to support an economy that looks in danger of missing its growth targets for the year.

Developer Stocks Rise After Rules Announced

“The lowered down-payment to 25% from 30% of the purchase price for first-time homebuyers will ease their access to the property market, thus boosting demand,” says Kaven Tsang, a Moody’s Vice President and Senior Credit Officer.

The new policy applies only to cities that do not otherwise restrict home purchases, thus excluding the four first-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou, as well as Sanya in Hainan Province.

“Among our rated developers, those with a strong presence in second-tier cities and large share of sales to first-time buyer should benefit the most,” Tsang said in a statement.

According to Moody’s these developers include China Overseas Land & Investment, China Vanke, Poly Real Estate Group and Country Garden Holdings Company.

Already the policy relaxation has had a positive effect on developer share prices, as investors bet that sales will rise. Since the measure was announced, Vanke’s stock price is up 7.34 percent, China Resources Land has risen by 11.5 percent and China Overseas Land is up by 8.09 percent.

Bringing More Buyers into Lower-Tier Markets

Although China’s home prices have been recovering in recent months, there have also been signs that this recovery may be weaker than expected, especially in the countries smaller cities.

September is usually one of the strongest months for home sales, however, in this past month average prices of new homes grew by only 0.28 percent month-on-month, slowing from August’s growth rate of 0.95 percent. The data, which came from a private survey of home sales in China’s 100 biggest cities, may have been enough to spark the central bank into action.

With home sales recovering more quickly in the first-tier cities this year, the authorities appear to be pushing to improve the market in smaller communities, many of which still suffer from large backlogs of unsold homes. According to the latest data from the National Bureau of Statistics, during August prices for new homes, including subsidised housing, were still declining in 29 out of 70 cities surveyed.

The failure to spark stronger growth in September comes after China moved at the end of August to lower down-payments for buyers of additional homes from 30 percent to 20 percent, provided that they had no outstanding debt on their existing units.

The August measure came after a similar move in March that lowered down-payments for all buyers of second homes from 60 percent to 40 percent.

China’s economy has been struggling with slower growth this year, and according to the Chinese Academy of Social Sciences, the nation’s economy is now expected to miss the Xi administration’s target of 7.0 percent GDP growth for the year.