Conditions ripe for establishing national housing bank

The central government recently emphasizes the destocking of real estate market after all these years to facilitate sustainable development of the real estate industry. Industrial insiders interpret it as that the role of housing provident fund might be intensified and the establishment of national housing bank will be put on schedule. Meanwhile, the Regulations on the Administration of Housing Provident Fund (revised draft for deliberation), recently issued by the Legislative Affairs Office of the State Council, allows housing provident funds centers to apply for the issuance of securities supporting individual housing loans for the first time. This move is interpreted as paving way for the establishment of national housing bank, while the real establishment still needs higher-level design.
Industrial insiders point out that as the shortcomings of the housing provident fund system exposed gradually, the role of the housing provident fund is weakened gradually. Calls on reforming the housing provident fund system keep growing. Under such circumstance, the establishment of national housing bank will effectively activate the idle fund of housing provident fund and stimulate the demand on housing consumption.

At present, China’s housing provident fund is managed in a decentralized way and cannot be managed cross cities. Cities with great demand on loans are short of capital supply, while cities with weak demand on loans see large amount of idle fund. The unused housing provident fund not only conflicts with residents’ difficulties in getting house-purchasing loans but also goes against with  the investment demand on indemnificatory housing. In addition, since housing provident fund has no financial function, banks are entrusted to manage its financial business, leading to high management cost, low service efficiency and hidden risks.

For years, on the one hand, people have difficulties in getting high-interest-rate house loans from banks, while on the other hand, the idle fund of the housing provident fund records several trillions of yuan.  Data shows that as of the end of 2014, the balance of national housing provident fund records 3.7 trillion yuan and the housing maintenance fund records around 500 billion yuan.

Besides, the risk reserve of national housing provident fund loans approaches 80 billion yuan, more than 50 billion yuan of which are excess provision and can be transformed into the capital fund of the housing bank.

“It is of great significance to propose to establish national housing bank in such a time point. At present, the establishment of national housing bank aims at destocking, stabilizing real estate market and stimulating housing consumption. The national housing bank can provide capital at low interest rate, helping to ease the house-purchasing burden on middle- and low-income groups and sharing the same goal with the regulation in the real estate market”, says Kang Junliang, a vice researcher with China Real Estate Association.

Wang Xuedong, branch head in Hunan province with China Development Bank (CDB), indicates that to achieve the housing guarantee goal, it’s better to establish a national housing bank that mainly provides long-term and low-cost financing to the sandwich class, which does not meet the requirements for budget homes nor can they afford commercial housing, for their housing consumption and to the construction of guarantee housing so as to offset the absence of commercial housing finance.

But Kang Junliang points out that the difference between the national housing bank and the housing finance business division previously founded by the CDB lies in that the latter is specific to provide funds for indemnificatory housing construction including rebuilding shantytowns, while the former is a policy-based housing financial institution based on the housing provident fund system which offers funds to middle and low-income families for buying houses.

It is noteworthy that the draft of regulation on housing provident fund for examination and approval permitted the issuance of mortgage-backed securities from housing provident fund, which will be an important capital source for national housing bank and effectively expand the single channel of collecting the housing provident fund.

Zhang Qiguang, head of the housing provident fund supervision department with the Ministry of Housing and Urban-Rural Development (MOHURD), indicated previously that if it is allowed to issue 1 trillion yuan of specific financial bonds each year, the capital amount will reach nearly 6 trillion yuan in 2015 and 20 trillion yuan by 2020, which will almost meet the low-interest-rate loan demand for the first set of house and improved owner-occupied housing.

In terms of capital source, Xiang Songzuo, chief economist of the Agricultural Bank of China, says that if the national housing bank is established based on housing provident fund system, the housing provident fund will be directly put into the policy-based bank, which will raise fund through issuing financial bonds to realize the transfer of income in form of subsidy.

“Although the conditions are ripe for China to establish a national housing bank, this plan is still under research.” Zhao Luxing, researcher from policy research center of MOHURD states that the establishment of national housing bank means that the provident fund management centers of public institutions will be restructured to be financial institutions. On the one hand, it is hard to define the management right; on the other hand, it is not known whether these centers are qualified for financial management. Moreover, the housing provident fund is mainly dominated by the local provident fund management centers; so establishing a national housing bank will affect the benefits of local regions. The fund is mostly deposited in China Construction Bank; therefore, changes will take place in the capital pool and significant benefit adjustment will also occur once the bank is set up.

Hence, Zhao Luxing points out that what the establishment of national housing bank needs is not merely the reform on provident fund regulations but a top-level design.