The Chinese government is bringing the housing reserve fund system to the forefront to revive the stagnant real estate market. This fund amounts to 10.9 trillion yuan (about 2,050 trillion won) and has effectively emerged as an alternative to bank housing loans.
The housing reserve fund is a government-led savings program that allows employers and employees to save a certain amount each month and borrow funds for purchasing dwellings at a low interest rate based on this. It was introduced based on the Singapore model from the 1990s.
Bloomberg News reported on the 10th (local time) that the housing reserve fund is providing more loans than banks while offering lower interest rates. Last year, the outstanding balance of housing loans from this fund reached 8.1 trillion yuan (about 1,550 trillion won), with the total balance recorded at 10.9 trillion yuan (about 2,085 trillion won). In the same year, the outstanding balance of housing loans from commercial banks was less.
The People's Bank of China recently lowered fund loan interest rates to a level 0.9 percentage points lower than banks. As a result, about one-third of the total housing loans in Beijing are now sourced through the reserve fund.
The government has also relaxed regulations that previously limited loan amounts. In most areas, the fund loans could not cover down payments, but recently, regulations have been loosened in at least 50 cities, and the loan amounts have been increased.
Bloomberg's research and analysis service, Bloomberg Intelligence, predicted that the sales of China's top 100 real estate developers would decrease by at least 10% this year compared to the previous year. This is only about one-third of the peak in 2020. Major developer Country Garden saw its sales plummet by 28% last month compared to the previous year.
Amidst a contraction in actual demand and a reduction in transactions, the Chinese government is lowering reserve fund interest rates and easing regulations to encourage housing purchases. However, an analyst from Hong Kong investment firm UOB Kay Hian noted, "While interest rates have decreased, it is unlikely that the real estate market will recover significantly based solely on this impact."
Experts believe that as the role of the fund system expands, the center of China's real estate finance may shift from banks to government-led funds in the future. President Xi Jinping stated, "We will pursue both stability in the real estate market and responses to external shocks."