MNI: PBOC Relending Boost More Effective For Housing- Advisors

MNI (BEIJING) - There are calls for the People’s Bank of China to expand the CNY300 billion relending facility and lower its interest rate to about 1%, well below current rental yields, to accelerate de-stocking and revive the housing market, advisors and analysts told MNI, noting this would be more effective than plans to allow local governments to use special-bond proceeds to buy unsold housing.

“The current actual interest rate is much higher than 1.75% after banks’ non-performing provisions and other cost calculations,” advisors at the Research Center for Real Estate Finance at Tsinghua University's PBC School of Finance told MNI, noting the PBOC needed to lower rates below rental yields – which were 1.79% in tier-one cities over H1 – to be effective.

The central bank should also extend the facility’s term and expand its scale by deploying over CNY1 trillion in batches as needed, the advisors added, noting only CNY12.1 billion of the CNY300 billion quota was used as of June.

The call comes amid media reports that authorities are considering allowing local governments to fund their purchases of unsold housing by issuing special bonds, currently mainly used for profitable infrastructure projects. 

Yan Yuejin, vice president of the E-house China Research and Development Institution, expects the policy to be introduced soon, which will expand on earlier relaxations that allowed special-bond proceeds to be used for idle land purchases announced in May. This would fall in line with policymakers’ recent calls to expand the use of such bonds amid a lack of profitable projects, he told MNI. 

The move would help local administrations alleviate funding pressure, Yan said, noting some regions may struggle to cover the costs of turning unsold homes into affordable housing. (See MNI EM: Beijing Called On To Buy Housing Stock Over Local Govs)

TIGHT FUNDS

While authorities have not officially authorised the use of special bonds for the purchase of unsold housing, 15% of the funds over the past few years were invested into the housing security system, which includes construction of affordable dwellings, urban village renewal and shantytown renovations, the PBCSF advisors told MNI.

Local governments could allocate about CNY300 billion of the unused CNY2.1 trillion special-bond quota as of July 2024 to invest in these areas, the advisors noted, adding funds available for buying up unsold housing would be subjected to this amount limiting the resources available.

However, Yang Xiaoyi, senior researcher at local government investment advisory BRI Data, said special bonds were aimed at leveraging new private sector investment, whereas market-oriented financing such as policy-bank loans better addressed housing-stock revitalisation.

HOME PRICES

Acquired properties should be used as affordable rentals for more than 10 years, as the sale of low-priced housing could further weaken demand and disrupt the expected rebound in home prices, the PBCSF advisors continued.

According to a recent Tsinghua PBCSF think tank survey of 60 industry insiders, 70% of respondents expected total home sales per square meter to fall less than 30% y/y in 2024. The survey also showed that home prices of tier-one cities may fall up to 10%, compared to the previous estimate of a 5% increase.

Authorities could relax purchase conditions to stabilise tier-one property prices to restore market confidence, the advisors said, adding that lowering new and existing housing mortgage rates and increasing tax deduction for mortgage carriers was also necessary to ease the household burden. (See MNI EM: Further Easing To Boost Property After China’s 3rd Plenum)