China taps pool of funds worth 10.9 trillion yuan to prop up housing market

[BEIJING] China is tapping an often overlooked pool of funds worth 10.9 trillion yuan (S$1.92 trillion) to salvage its housing sector, offering people an alternative to bank mortgages. 

The housing provident fund, a government savings programme used to help people buy homes, has become an increasingly important means to obtain financing, as banks turn more cautious with profit challenges. The fund has outpaced banks in giving out loans, hitting 8.1 trillion yuan in outstanding mortgages last year. 

“It’s a frontrunner among policies used to support the housing market,” said Chen Wenjing, a research director at China Index Holdings. “The housing market has seen lingering pressure, and many local governments have leveraged this policy to reduce the mortgage burden.”

The programme, which China adopted from Singapore three decades ago, requires employees and employers to contribute monthly into a pool that can then give out mortgages, often at a lower interest rate than banks. 

President Xi Jinping has pledged to help the country turn around the ailing property market and counter external shocks, a challenge that was brought back in focus this month after the US and China accused each other of violating a trade truce agreed in May. 

The provident fund’s importance is growing at a time when banks, which have been enlisted to support the economy over the past few years, are battling record-low margins, slowing profit growth and rising bad debt. 

Easing financing for mortgages is important as China’s housing market recovery remains tenuous. China’s top 100 developers are expected to see contracted sales decline at least 10 per cent this year to about 3.4 trillion yuan, less than a third of 2020’s peak, according to Bloomberg Intelligence analyst Kristy Hung.

Residential sales continued to fall in May. Distressed giant Country Garden Holdings’ 28 per cent slide in sales last month underscored buyer concerns about the firm’s health and the broader sector. 

Past challenges

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In the past, the provident fund was underutilised, partly because of many restrictions. 

When buying homes, China’s middle class usually take out a combined mortgage – a bigger chunk from a bank with higher interest rates, and a smaller and cheaper loan from the provident fund. 

The amount of loans a person can tap from the provident fund is usually limited – it is determined by a variety of factors including how much they have deposited in the pool and their marital status. Most places also restricted people from making down payments with the money. 

Since last year, many cities began easing rules. This year, at least 50 municipalities and cities relaxed the conditions on how people can use loans provided by the provident fund, including increasing the amount they can take out, according to China Index Holdings.

In the most recent move, the central bank cut interest rates for mortgage loans given out by the housing provident fund, making it 0.9 percentage points cheaper than bank mortgages. 

Its usage has been growing. In Beijing, 33 per cent of residential mortgages were financed by the fund last year, higher than 29.4 per cent in 2020. 

While the recent rate cut reduces borrowing costs for a homebuyer by about 3 per cent, it’s a “rather marginal” relief and unlikely to cause a rally in home sales, said Liu Jieqi, a Hong Kong-based property analyst at UOB Kay Hian.

“It signals the government’s efforts,” Liu added. “But in the end, a broad property recovery hinges on effective implementation” of policies and a better economic outlook.

Plugging a gap

For now, the provident fund is helping plug a gap, as lenders cut back. Outstanding home loans by the fund grew 3.4 per cent in 2024, while commercial bank loans dipped 1.3 per cent.

Unlike banks, the provident fund has ample ammunition for more aggressive lending. With contributions from almost 180 million employers and employees across the country, the fund had an outstanding 10.9 trillion yuan as of 2024, higher than the outstanding amount of its mortgage loans, according to official data. 

Computer science researcher Eli Zhang is a typical young buyer benefiting from the fund. The 30-year-old snapped up a 65 sqm home in suburban Beijing in 2023. Since then, Zhang has been tapping the provident fund every month to partially cover her US$550,000 mortgage. 

“The housing provident loans are getting cheaper and cheaper,” said Zhang, who now pays interest of about 2.85 per cent for mortgages from the provident fund. “With its help, my mortgage is quite affordable.”