What's going on?

China has made it easier for people to buy property by lowering the minimum down payment on second home purchases to 40%, from 50-60% in most cities and 70% in Beijing and Shanghai. China has also expanded a capital-gains tax exemption to include sellers that have owned their home for a minimum of two years, rather than the existing five-year minimum. Both moves should be moderately supportive for the housing market, which directly and indirectly accounts for over 20% of China�s GDP.

What does this mean?

China is trying to support its housing market as it fears that a slowdown in housing and construction could become too much of a negative influence on the broader economy. By decreasing the amount that buyers need as a down payment on investment properties, the government is making it easier for people to buy homes by allowing them to do so with a higher proportion of borrowed money. The capital gains exemption also makes the concept of buying property more attractive because the net, post-tax gain could be higher.

Why should I care?

Much of Chinese growth in the past decade or so has been built upon a housing boom that has almost certainly become a housing bubble. As the property market cools and the bubble threatens to burst, the government is becoming more accommodative in its policies. However, managing the decline of a housing bubble is inherently difficult; bubbles tend to burst in dramatic fashion, not just slowly decline. The impact of the slowing Chinese property sector is already being seen in China�s economic growth rate (expected this year to be at its lowest level in more than twenty years) and also in the decline of commodity prices in the past few years. If China is unable to avoid a bursting housing bubble, the global impact will be even more pronounced.