Beijing has decided to reduce taxation on home buying, do away with property stamp tax, and cut the mortgage rates by as deep as 30 percent, in a concerted package of new policies to stave off a housing sector slump.

For those buying their first home, regardless of the size, the down payment requirement will be lowered to 20 percent from the present 30 percent, and banks will be allowed to charge as little as 70 percent of benchmark lending rates for the mortgages.

The new policy, which was obviously approved at an emergency meeting of the State Council, chaired by Premier Wen Jiabao over the weekend, also removed the 0.05 percent stamp tax and land value-added tax for home purchases starting from next month.

The move marks an initial unwinding of property tightening measures that the government put in place over the last few years, to counter what were then rapidly rising prices and a skyrocketing inflationary pressure.

The change of policy by Beijing comes just two days after the National Bureau of Statistics reported that annual gross domestic product growth in the third quarter slowed sharply, to 9.0 percent from 10.1 percent in the second quarter.

Real estate investment is the second-largest contributor to China's urban fixed-asset investment, which is a major driver of the overall economy. Policy-makers are concerned that a selling lull in urban properties could drag the economy to its ebb, a scenario they are trying their most to avoid, in the backdrop of an extending world financial crisis and a subsequent economic slowdown.

To rejuvenate the housing sector, the Chinese government also said last week that the country needed to build more affordable housing. To that end, Beijing may launch a 1 trillion yuan fund to build affordable houses for poorer citizens, the Chinese-language China Business News reported on Wednesday.

As many as 18 Chinese cities, including Shanghai, Guangzhou, Hangzhou and Xi'an, have announced detailed policies to boost their respective property markets, which have seen at least four months of consecutive drops in housing prices.

In September, the housing price in southern city of Shenzhen plunged by 5.3 percent from a month ago.

Chinese economists have cautioned that a worsening slump in the real estate market in China would not only undermine the healthy growth of the economy, but also put the country's financial system at risk.

The worsening financial crisis, now sweeping the world and hardening the lives of many, originated from the subprime debacle in mid 2007 in the United States. Because of the sudden bust of a 10-year American housing boom, a rocketing number of American homeowners were unable to pay mortgages, and the banks were troubled by mountain-high bad debts.

To prevent the same scenario from happening, the 18 Chinese cities have resorted to measures, including doling out subsidies to private homebuyers, unprecedented since former Prime Minister Zhu Rongji launched privatization policies of housing; cutting taxes on housing deeds, and even giving permanent urban residents permits to lure outside homebuyers, in Hangzhou's case.

Shanghai raised the mortgage ceiling of the housing accumulation fund by one-fifth, into which employees and employers deposit money every month in return for lower mortgage rates, a move expected to encourage city residents to apply for a larger housing loan.

Like the United States and Europe, China also witnessed a sizzling real estate sector since 2000, led by Shanghai, Guangzhou, and other relatively developed coastal cities, that benefited from the reform and opening-up policies. Buoyed by increasing incomes, a rising number of well-off urban residents purchased their own homes, in addition to cars and other luxuries, and become China's middle-class.

(China Daily October 23, 2008)