By staff reporter Zhang Yingguang
 
(Caijing.com.cn) China's cabinet has lowered the minimum capital required to start residential developments, which signals a shift in real estate policies from stimulating demand to boosting supply and has received mixed responses.  
 
The State Council slashed the minimum ratio for ordinary residential developments from 35 percent of the total project cost to 20 percent May 27. The Council also lowered the minimum capital ratio for commercial property and high-end housing projects from 35 percent to 30 percent.

The definition of an ordinary residential unit varies in different administrative regions. For example, it refers to an apartment no larger than 100 square meters in Beijing, while it means less than 140 square meters in Sichuan Province. The residential units account for the biggest share of the housing market across the country. 
 
This marks the first time the government has lowered the ratio since 1996. The proportion was raised to 35 percent in 2004 to dampen the overheated housing market.

As a result, China's property sales increased 35.4 percent year-on-year to 799.6 billion yuan from January to April, according to the National Bureau of Statistics.

Still, the pace of real estate investment growth declined by 6.5 percent in April, the lowest since China launched housing privatization and commercialization in 1999.
 
"Reduced investments in housing projects affect negatively the growth of the gross domestic product," said an industry official, who asked not to be named. "This was the major reason why the government eased capital requirements."  
 
The relaxed capital requirement will allow developers to use less capital to get more bank loans, which will drive developers to expand their land reserves and increase investment, Nie said.
 
If the lowered ratio requirement halts or reverses further slumps in real property investments, then there is real hope for an upturn in the real estate market, Nie said.  

However, some developers believe the change in capital requirements is not enough.
 
"If a developer still needs to pay the entire amount for land purchases (rather than in installment), which is another precondition for bank loans, the mere reduction in the capital ratio does not help a lot technically," said Fan Xiaotong, deputy president of the Sunshine 100 Real Estate Group.
 
In a concrete move to encourage the property investment, local authorities are now allowing developers to pay land premium in installments, instead of in a lump-sum, Fan said.
 
Full article in Chinese: http://www.caijing.com.cn/2009-05-31/110173727.html