China cities buy housing with PBOC-tied loans, local media says
SOME Chinese cities are taking advantage of low-cost funds from the country’s central bank to purchase unsold homes and convert them to rental housing, a local media report showed, in a sign authorities are trying new means to address the nation’s property crisis.
Major cities including Qingdao, Fuzhou and Tianjin have purchased apartment buildings for the purpose of subsidised rental housing, the Economic Observer reported on Thursday (Jan 11), citing unidentified sources. The transactions were done via so-called rental housing loans, the local news outlet said.
The People’s Bank of China (PBOC) set up a specialised monetary tool for this purpose in early 2023, encouraging seven financial institutions to extend loans in eight trial cities, one of a number of initiatives it is launched. The facility was aimed at bulk purchases of existing homes, which would both reduce the overhang of unsold properties and expand the supply of affordable rental housing.
The PBOC had promised to provide as much as 100 billion yuan (S$18.7 billion) for banks participating in this programme. The loans extended to cities carry an interest rate as low as 3 per cent, with the underlying funding from the PBOC to the financial institutions set at a rate of 1.75 per cent.
Some of the cities used local government financing vehicles (LGFVs) – government-backed entities – to borrow the money, the Economic Observer said. LGFVs have been in focus in China’s property slump as many have had severe cash-flow strains. National authorities have been pressing for a clean-up of bad debt tied to LGFVs.
Debt concern
A PBOC notice earlier this month stated that loans using its funding cannot add to hidden local government debt. It also said that the loans cannot exceed 80 per cent of property values.
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These loans can keep being rolled over as long as cities are able to pay the interest with the rental income generated, the newspaper said, citing unnamed local officials.
The initiative underscores China’s effort to shift its housing sector towards more of a public housing model, taking a page from Singapore’s social housing structure – seen as creating a more sustainable and healthy real estate market.
Such efforts could also rekindle property investment and construction, helping to end a multi-year property slump that has weighed on economic growth and hammered consumer confidence in the world’s second-largest economy.
Other than the rental housing loan programme, the central bank in December provided 350 billion yuan in low-cost funding to finance projects that build social housing and renovate run-down inner city districts.
The latest data from the PBOC as at the end of September showed banks had not tapped the low-cost funds for the rental programme. The central bank is expected to provide an update on use of its tools sometime this month. BLOOMBERG
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