China’s Housing Fund has amassed USD 1 trillion from workers, but 50% remains untapped

Wednesday, 3rd September 14:30 HKT

China’s housing provident fund is a scheme designed to help workers buy property. Every month, up to 7% of a workers salary will be deducted and paid into the fund. The worker’s employer will also make a matching contribution (or more if you’re a government official).

In August, the Ministry of Housing and Urban-Rural Development (Housing Ministry) announced plans to ‘strengthen and improve’ the system. This is code for ‘the system isn’t quite working’, a system which has led to many complaints from the public.

China Securities Journal reports that one of the problems is that the public are not too familiar with the workings of the housing provident fund, including the process of collecting payments, and then at a later date, applying for assistance when buying a property.

But the other more problematic issue, is the lack of funds distributed to home buyers. Data shows that since the scheme’s inception 22 years ago, 106 million workers have made contributions totaling 6.4 trillion yuan. However 3.27 trillion yuan still remains in the fund.

The main reason for the high surplus and low utilisation rate of 50%, is the low loan issuance amount. Although loan amounts vary across regions in accordance with the local property market conditions, overall loan amounts haven’t kept pace with rising property prices. This means most home buyers need to top up this amount, by applying for commercial mortgages, which makes the overall process time consuming. The result is that property developers will have to wait at least half a year to receive the funds, hence some will not accept home purchases from those applying through the Housing Provident Fund.

Zhao Luxing, an academic at the Housing Ministry, told reporters, another shortcoming of the scheme, is the lack of support for low income households. Only those that can afford houses are eligible for the scheme, which is in reality few. Accordingly some areas are exploring widening the scheme to support those renting houses, but it’s a complex process, so in the end, not many households can take advantage of this.

Other issues arise from a lack of system integration, so those homes situated between cities, cannot be linked with both cities. And finally the old problem in China’s economy, misappropriation of funds by government officials.

(Article not to be copied or reproduced without permission or citation).

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