SHANGHAI/BEIJING: Chinese regulators eased lending and tax policies on real estate yesterday, as Beijing seeks to stop a slide in property prices that has put economic recovery at risk.

The People's Bank of China (PBoC), in a statement on its website, urged financial institutions to support home purchases using a combination of commercial lending and a housing provident fund.

The announcement, which confirmed rumours swirling in the domestic media earlier yesterday, reduces commercial banks' minimum downpayment requirement for buyers of second homes to 40% from 60% previously.

The downpayment for second home loans by persons borrowing from the housing provident fund is now set at 30%, provided they have no outstanding mortgages, according to the statement.

First-time buyers using the provident fund need only make a downpayment of 20%.

The provident fund is a government-managed programme in which all of China's employers and employees — basically everyone except farmers, the unemployed and most self-employed persons — contribute to a pool from which employees may borrow for housing purchases.

"All the changes are effectively immediately,'' the statement said.

The Ministry of Finance, in a separate statement around the same time, said that individuals selling an ordinary house "are exempt from business taxes if they have owned the house for more than two years.''

It made no mention of other taxes that are typically applied to housing sales, including stamp tax.

China's home prices have been sliding for six consecutive months, falling at the sharpest annual pace on record in February.

Economists warn that the sector's weakness could put Beijing's 7% GDP growth target at risk if it continues unabated.

Housing investment underpins demand in a wide variety of sectors, in particular economic heavyweights such as cement and glass, and Beijing's willingness to tolerate sustained weakness in housing has been blamed in part for negative surprises across the broader economy.

The central bank said the new policies "are to support residents' need to live and improve their housing conditions, and promote stable and healthy development of the real estate market."

PBoC governor Zhou Xiaochuan warned on Sunday that the country needed to be vigilant for signs of deflation and said policymakers were closely watching slowing global economic growth and declining commodity prices.

"Inflation in China is also declining. We need to have vigilance if this can go further to reach some sort of deflation or not," he said at a high-level forum in Boao, on the southern Chinese island of Hainan.

Zhou added that the speed with which inflation was slowing was a "little too quick", though this was part of China's ongoing market readjustment and reforms.

The central bank's newspaper warned last month that China is dangerously close to slipping into deflation.

The PBoC has cut interest rates twice since November and taken other steps to support growth, but economists believe it will be forced to take more aggressive measures in coming months if prices and the economy weaken further.

Zhou also said China had a "clear direction" in terms of interest rate liberalisation — a long-term goal — although he added that it was difficult to put a clear timetable on the move.

He pointed to comments made last year when he said the country's deposit rates were likely to liberalised in one to two years.