(Yicai Global) Feb. 18 -- Heze, a small third-tier city in northeastern Shandong province, has become the first city in China to slash mortgage down payments to 20 percent in order to boost confidence in home ownership amid a cooling real estate market.

The Heze branches of a number of state-owned banks, including China Construction Bank and Agricultural Bank of China, have reduced the minimum down payment for first-time home buyers by 10 percentage points and they have also cut the average mortgage rate to 5.6 percent from 5.95 percent, Yicai Global learned yesterday from real estate agents.

Pre-owned property prices in Heze fell 1.7 percent last year from the year before to CNY5,876 (USD927) per square meter. The city also has a large inventory of unsold properties due to large-scale urban renovations and new developments.

Local governments need to find ways to stimulate housing demand based on new market conditions and changing personal finances, said Yan Yuejin, director of the think tank Shanghai Federation of Social Science Associations.

Although a number of cities have offered to lower the down payment, little progress has been made, Yan said. Instead they have cut mortgage rates, increased loan amounts and issued subsidies for home purchases. But on the basis of the practice, lowering the down payment may be the best measure, Yan said.

More cities are likely to follow suit, especially those in the same tier where market fundamentals are weak, said Chen Wenjing, associate research director of the China Index Academy's index division.

Editor: Kim Taylor