With China's economy slowing more sharply than expected, the Beijing government moves to boost domestic spending by making it easier to buy a home. Fergus Naughton reports:  

Chinese homebuyers have been waiting for Beijing to unveil new measures to ease the burden of buying a new home amid a slowing economy -- and finally, authorities have followed through. Yesterday the central government announced fresh support policies for the country's slumping housing market, and it comes at a critical time.

The market will welcome Beijing's latest initiative. But much remains to be done to aid a sector that's been teetering on the brink of meltdown. More measures are expected, experts said.

"This is big news, and the actions came sooner than expected, probably because the Q3 GDP growth was worse than expected and the slowdown has proven sharper than the government has expected," said Frank Gong, an economist at JPMorgan inHong Kong.  "Boosting the property market in China is not only necessary, but also the most crucial and most important policy move to hold up China's domestic demand growth."

China's Ministry of Finance announced Wednesday night, after the stock markets had closed, a series of measures intended to stimulate the country's plummeting housing market.

According to a ministry statement, effective November 1 deed tax will be cut to 1.0 percent from 1.5 percent for first-time buyers of apartments under 90 square meters (which is generally accepted as the size threshold distinguishing average housing from more upscale digs). Mortgage downpayments will be lowered to 20 percent from 30 percent. And mortgage rates will be reduced to as little as 70 percent of base lending rates for both first-time buyers and those upgrading to pricier homes.

The current 0.5 percent stamp duty will also be abolished for individuals buying or selling homes, and land-appreciation tax for individual home sales will be waived.   In addition, the ministry said that local governments are encouraged to introduce their own policies to further reduce transaction costs and other fees in order to stimulate home purchases.

The central bank has also cut interest rates twice in as many months. Such policy moves should mark the beginning of a series of central government policies intended to ease earlier constraints on property transactions

The policy shift from "tightening" to "supportive" is widely deemed a necessary one. China's National Bureau of Statistics announced Monday that GDP growth for the third quarter was 9.0 percent - a noticeable slowdown from 10.1 percent the previous three months and the lowest quarterly growth rate since the second quarter of 2003 – though still a dream of Western economies.

Not long ago, housing prices in China seemed to just keep rising. But the rate of increase has declined precipitously in recent months. Official figures show that property prices in China's major cities rose just 3.5 percent year-on-year in September, compared with 5.3 percent in August. One of the hardest-hit regions is Shenzhen, in southern Guangdong province adjacent to Hong Kong, where prices were down an estimated 40 percent for the period.

On top of falling prices, property developers have been feeling the squeeze from shrinking transaction volumes. Homebuyers have been waiting it out in hopes that prices will fall to a lower, more realistic level. And falling prices are not good for Beijing.  In China, the property market contributes about 20 percent of GDP growth.

Sure, most developed countries would kill to have annual GDP growth rates of 8 or 9 percent.  But in China, it's widely estimated that authorities must maintain at least 8 percent GDP growth annually to generate enough jobs for youth entering the workforce -- and thereby to stave off destabilizing unrest. Now many experts expect next year's GDP growth to drop below the magic 8 percent level. China's economy is still doing alot better than in many Western countries. Still, that fact won't necessarily prevent 2009 from becoming Beijing's year of living dangerously.