Loan policy will spur rental housing, realty

Experts see rise in lending, better home security system, steady builder capital

China's top regulators' decision to exempt affordable rental housing projects from property credit control could make the segment a potential driver of growth of the property market, said experts.

Loans offered by China's banking institutions to affordable rental housing projects will not be included in the management of real estate loan concentration, the nation's central bank and top banking and insurance regulator announced jointly on Tuesday.

Under the new regulation, it will be easier for property developers to get loans for affordable rental housing projects, and commercial banks are encouraged to grant such loans. Therefore, it will likely promote the country's housing support system, industry experts said.

"The new policy will definitely promote the development of subsidized rental housing, and it is also an improvement on the management system for property loans. With more developers applying for affordable rental housing loans, the sector will see better and faster development this year," said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution.

To guard its financial system against risks, China has implemented the management system of property loan concentration since Jan 1,2021, according to Xinhua News Agency.

Previously, the People's Bank of China and the China Banking and Insurance Regulatory Commission established a real estate loan concentration management system for banking institutions and set various ceilings for the ratio of loans relating to property development and consumption based on certain factors, including the asset size and the type of banking institutions. Now they have decided to exempt affordable rental housing projects from the management system.

"This is good for banking institutions to increase credit extended to affordable rental housing projects and support the construction of the housing support system in China," said the PBOC and the CBIRC.

Property developers would become more active in affordable rental housing development, and this will effectively enlarge the supply of subsidized rental housing, said Huang Hui, senior analyst with the Beike Research Institute.

According to Huang, some real estate developers are currently facing immense capital pressure. Affordable rental housing loans will help them maintain both steady capital flow and smooth operations.

Banking institutions should step up support for affordable rental housing projects and provide related financial products and services; they should ensure lending is in compliance with the laws and regulations concerned, and related risks are under control. They should also develop a sustainable and commercially viable business model, the two regulators said in a joint notice.

"The new policy removed the limitation on approving loans to government-subsidized rental housing projects. This is intended to encourage commercial banks' lending for such particular purposes," said Li Yujia, chief analyst at the provincial residential policy research center of Guangdong.

According to Li, affordable housing loans are charged at comparatively lower interest rates, which means commercial bank returns on such loans will be lower than returns on commercial loans. Exclusion of the special loans from their management system will inspire banks to extend more loans in this regard.

Zheng Chenyang, a researcher with the BOC Research Institute, said she now expects nothing less than a construction boom in affordable rental housing. Up to 20 provinces announced their annual plans for the development of affordable rental housing projects in January, Zheng said.

Local governments have also accelerated the pace of developing such projects since last year. As many as 942,000 units of subsidized rental housing were developed in 40 Chinese cities in 2021.The figure is projected to reach 2.4 million units this year, the Securities Times reported.