Monday, 29 December 2008

China Builds Plan for Low-Income Homes

Housing low-income families and keeping developers honest are goals of an initiative tied to China’s economic stimulus plan.

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Guanyu said...

China Builds Plan for Low-Income Homes

Housing low-income families and keeping developers honest are goals of an initiative tied to China’s economic stimulus plan.

Fang Huilei, Caijing
18 December 2008

China’s cabinet has unveiled a series of policies designed to encourage construction of millions of homes for low-income families, boost the nation’s real estate market and prevent loan diversions by shady borrowers.

The State Council’s Standing Committee decided December 17 the government would support an expansion of the nation’s low-cost housing stock and, at the same time, provide financial support.

The cabinet also agreed to encourage banks to provide loans for mergers and acquisitions among real estate developers with high credit ratings.

On the same day, the People’s Bank of China and China Banking Regulatory Commission released related measures designed to stimulate construction of low-income housing through tax and loan policy incentives.

The central bank announced a 10 percent discount on benchmark interest rates for developers who borrow to build low-income housing. The maximum repayment period was set at five years.

The bank also set a 20 percent capital requirement for low-income housing developers -- 15 percent below what’s required for standard commercial housing projects.

And the measures lay out rules for a system aimed at preventing unscrupulous developers from defeating the purpose of the initiative by funnelling borrowed money away from low-income construction. Commercial banks and other lenders would be required to channel all loans through special, carefully monitored accounts. And borrowed funds would have to be released gradually in step with a project’s progress.

Until now, many developers shied away from low-income housing projects due to a lack of financing and because middle-income and luxury apartment projects offered higher returns. Funds for low-income projects traditionally came from the central government treasury or through developer revenues from land and apartment leasing.

But in recent months, developers have been stung by a slowing market, prompting the central government to include a housing chapter in a 4 trillion yuan economic stimulus package announced in November.

The stimulus plan calls for spending 900 billion yuan to build low-income housing over the next three years. Some 2 million “low-income” and 4 million “affordable” housing units would be built. The government estimates a substandard housing stock of 2.2 million units nationwide.

Responding to the stimulus plan, major commercial banks have already pledged to offer more credit for affordable housing projects.