Unboxing China's policy toolkit for propping up property market

BEIJING -- In a bid to support economic recovery, China has ramped up efforts to stabilize the real estate market, a pillar industry underpinning the world's second-largest economy.

An array of nation-wide and city-specific policies have been rolled out in recent years, seeking to offering targeted support for both home-buyers and property developers.

The following are some of the major steps designed to explore a new model for the industry deemed "relevant to the immediate interests of the people and the overall situation of economic and social development."

LOWER DOWN PAYMENT RATIO AND MORTGAGE RATE

To ease the financial pressure for buying houses, the country has adjusted its policies regarding the minimum down payment ratio and mortgage rate.

In less than a year, the country's central bank and top financial regulator twice lowered the minimum down payment ratios for individuals' commercial housing mortgages for first and second homes, cutting as much as 15 percentage points in total respectively.

In addition, home buyers can pay less interest on their mortgages as the country has cut the loan rates of the individual housing provident fund, a long-term housing savings plan made up of compulsory monthly deposits by both employers and employees. The floor level of commercial mortgage rates for first and second homes has also been scrapped across the country.

CUT PURCHASE AND SALE RESTRICTIONS

In light of the significant shifts in the equilibrium between real estate market demand and supply, local governments throughout China have taken progressive steps to remove previous measures aimed at curbing market speculation.

The measures that have been removed encompassed restrictions on the eligibility and quantity of property purchases, as well as the time limit for selling houses after purchase.

Several cities, including Hangzhou, a prominent technological hub in eastern China, have lifted all restrictions on housing purchases. However, certain cities, such as Beijing, the capital of China, have chosen to retain specific counter-speculative policies that are tailored to local conditions.

HOUSING TRADE-IN

In a bid to tap the huge potential of home upgrades, many cities have tried housing trade-in programs to incentivize families to swap their old houses for bigger, better ones.

Local governments have taken various approaches to support such programs, including offering subsidies for home upgrades and encouraging the active involvement of property agents and developers in facilitating trade-ins.

The majority of China's existing housing stock is small and medium-sized apartments, typically spanning an area of less than 90 square meters. As living standards improve and urbanization progresses, there remains a considerable demand for upgraded housing in the Chinese real estate market.

FINANCING SUPPORT FOR QUALIFIED PROPERTY PROJECTS

As part of efforts to ensure the delivery of ongoing housing projects, the country has established a coordinated financing mechanism to help cash-strained property developers finish their projects.

This mechanism primarily involves the establishment of a "white list" that identifies real estate projects eligible for financing support. This list is shared with commercial banks operating within the respective administrative regions.

Currently, the mechanism has been set up in 297 cities at or above the prefectural level across the country. As of May 16, commercial banks had approved a total loan amount of 935 billion yuan (about 131.56 billion U.S. dollars) for projects on the "white list" through their internal approval process.

TURN COMMERCIAL HOUSING INTO AFFORDABLE HOUSING

To destock commercial housing projects struggling with sales, local governments are encouraged to leverage state-owned enterprises to buy reasonably-priced commercial homes that have completed construction to turn them into government-subsidized housing.

These affordable housing initiatives, with rental and sales prices set below market levels, aim to address the housing needs of low-income families.

Last week, the central bank announced a plan to establish a 300-billion-yuan relending facility for this project, which is anticipated to generate banking loans totaling 500 billion yuan.

LAND BUYBACK AND TAKEOVER

In cases where real estate companies encounter financial difficulties in developing land, local governments have the option to purchase such land for public purposes.

Local governments would be able to reclaim idle land from businesses at a reasonable price, or to acquire land that has been unsold in judicial or bankruptcy auctions, the housing ministry said last week.

Following buyback or acquisition, these plots can be utilized for the construction of affordable housing, as well as the development of public supporting facilities to enhance the living conditions in the surrounding area.