Experts: Targeted funding could boost realty sector

Homebuyers look at property models in Taiyuan, Shanxi province. [PHOTO by WEI LIANG/CHINA NEWS SERVICE]

It is sensible for China's monetary policymakers to consider providing targeted funding for affordable housing and shantytown renovation projects, amid a pressing need to boost domestic demand and address property sector risks, experts said.

They suggested using the funding to assist local governments in purchasing idle properties and rebuilding them into affordable homes, rather than subsidizing residents in purchasing new homes, which could reignite property price bubbles.

"I think the implementation of such policy should be sooner rather than later, and doing more is better than doing less," said Zhang Bin, deputy director of the Chinese Academy of Social Sciences' Institute of World Economics and Politics and a member of the 14th National Committee of the Chinese People's Political Consultative Conference, the nation's top political advisory body.

Zhang said that if implemented, the targeted funding — likely in the form of a monetary policy tool called pledged supplementary lending, or PSL — would catalyze multiplied expenditures and help address insufficient domestic demand, a prominent problem facing the Chinese economy.

His comments echoed the sentiments of the People's Bank of China, the country's central bank, and other financial regulators. At a meeting with financial institutions on Friday, they called for actively supporting affordable housing and other key real estate projects to establish a new development model for the real estate sector, the central bank said in a statement.

The PSL funding could help local governments acquire existing properties, either for residential or commercial use, and rebuild them into affordable homes for low-income groups, which would help improve the cash flow of real estate developers and mitigate risks in the real estate sector, Zhang said.

A guideline for the planning and construction of affordable housing, approved in August by the State Council, China's Cabinet, encourages cities with a large inventory of commercial residential properties to purchase or build the inventories as affordable homes, the Economic Observer reported in late October.

Hong Hao, chief economist at GROW Investment Group, said that if the People's Bank of China uses pledged supplementary lending to renovate shantytowns, it would show China's determination to stabilize the property sector and expand the central bank's balance sheet, a positive for the Chinese economy.

Bloomberg reported on Tuesday that China might provide at least 1 trillion yuan ($138.7 billion) in low-cost financing, perhaps via pledged supplementary lending and special loans, to urban village renovation and affordable housing programs, with the money ultimately trickling down to households for home purchases.

Tang Yao, an associate professor of applied economics at Peking University's Guanghua School of Management, said that PSL funding should focus on financing the construction of affordable housing projects and urban village renovation, instead of subsidizing residents displaced from urban villages with money to buy new homes.

This mode, which was used in shantytown renovation from 2015 to 2018, has been criticized for inflating asset price bubbles, Tang said.

Tang also cautioned that while policymakers are striving to ensure that real estate companies receive reasonable financing, pledged supplementary lending should still not directly infuse liquidity into stressed real estate companies.

"This could bring about a moral hazard scenario — where real estate companies engage in risky behavior assuming that the government will come to their rescue if things go wrong," he said.