China is drawing on a substantial government-run savings scheme totalling 10.9 trillion yuan (US$1.5 trillion or RM6.43 trillion) in an effort to stabilise its struggling housing sector, providing citizens with a financing alternative amid a tightening banking landscape.
The Housing Provident Fund — a policy originally modelled after Singapore’s system more than three decades ago — has grown in significance as commercial banks grapple with squeezed margins, slowing profits and increasing non-performing loans. The fund, which requires monthly contributions from both employees and employers, offers mortgage loans often at lower rates than commercial institutions. In 2023, outstanding mortgages through the fund reached 8.1 trillion yuan, outpacing lending by banks.
“It’s a frontrunner among policies used to support the housing market,” said Chen Wenjing, Research Director at China Index Holdings Ltd. “The housing market has seen lingering pressure, and many local governments have leveraged this policy to reduce the mortgage burden.”
President Xi Jinping has reaffirmed his administration’s commitment to revive the property sector and mitigate the impact of external economic shocks, a topic that gained renewed attention after recent US-China tensions over trade commitments resurfaced.
As confidence in the housing market remains weak, easing access to affordable mortgage financing has become critical. According to Bloomberg Intelligence analyst Kristy Hung, the top 100 Chinese developers are projected to experience a further 10% drop in contracted sales this year, totalling just 3.4 trillion yuan — less than a third of the 2020 peak.
Residential sales continued their downward trajectory in May, with a 28% month-on-month decline in sales reported by the embattled Country Garden Holdings Co, highlighting persistent buyer caution across the sector.
Previously underutilised due to strict conditions, the Housing Provident Fund has seen growing uptake following a wave of regulatory relaxations. Traditionally, borrowers would combine a larger, higher-interest bank loan with a smaller, cheaper loan from the fund. However, the scope of access to provident fund loans was constrained by variables such as deposit levels and marital status, and downpayment usage was often restricted.
Since 2023, at least 50 cities and municipalities have relaxed these limitations, including raising withdrawal limits and expanding eligible usage. Shenzhen, one of China’s most expensive housing markets, recently permitted residents to tap into their provident fund accounts for downpayments. This follows major reforms in March which nearly doubled the city’s mortgage loan quotas compared to 2023.
In Beijing, the fund financed 33% of residential mortgages in 2023, up from 29.4% in 2020, indicating a steady shift in borrower preference.
The People’s Bank of China has also reduced interest rates for provident fund mortgages, making them 0.9 percentage points cheaper than those offered by banks. While the resulting 3% decrease in borrowing costs may offer limited short-term impact on overall sales volumes, it underscores continued government intervention. “It signals the government’s efforts,” said Liu Jieqi, a property analyst at UOB Kay Hian in Hong Kong. “But in the end, a broad property recovery hinges on effective implementation and an improved economic outlook.”
Data show that outstanding home loans through the fund grew by 3.4% in 2024, even as commercial bank lending declined by 1.3%. With 180 million contributing employers and employees nationwide, the fund is well-capitalised to expand its role further. Its 10.9 trillion yuan balance significantly exceeds its outstanding mortgage loan commitments.
For buyers such as Eli Zhang, a 30-year-old computer science researcher in Beijing, the programme offers much-needed relief. Zhang purchased a 700-square-foot suburban property in 2023 and now uses the fund to help manage her 4 million yuan (US$550,000 or RM2.33 million) mortgage. “The housing provident loans are getting cheaper and cheaper,” she noted, paying a competitive 2.85% interest rate. “With its help, my mortgage is quite affordable.”
-Bloomberg
