CHINA BANK REGULATOR CALLS ON BANKS TO AID PUBLIC HOUSING PLAN
China Bank Regulator Calls On Banks To Aid Public Housing Plan
Dow Jones – 8/4/2011 -- by Rose Yu and Esther Fung
-- China bank regulator says banks can offer 10% discount on lending rates for public housing
-- Banks can issue credit to local government investment arms for such projects
-- Banks are encouraged to make syndicated loans for affordable houses
SHANGHAI --China's banking regulator on Friday urged banks to extend credit and offer preferential lending rates to support the construction of public housing, in a bid to ease funding shortfalls that have hampered the key government project. The China Banking Regulatory Commission said in a notice that banks can offer a 10% discount on interest rates on loans for public housing projects, and issue credits to local government financing vehicles to support construction of affordable homes. "The notice is intended to highlight the financial system's support for the construction of public housing," the CBRC said in a statement on its website. The comments are a key step forward in ensuring funding for low-cost housing amid widespread criticism of spiralling property prices and fears among policy makers this could lead to social unrest. China targets building a total of 36 million affordable housing units over the 2011-2015 period to contain house prices but the program has hit headwinds amid local government reluctance to provide adequate financing. Many local governments depend on land sales for their operating funds and prefer to back more lucrative projects at higher, commercial prices. The banking regulator's comments mark a significant departure from the authority's own stance toward loans to the real-estate market and local government borrowings. The CBRC has taken a series of measures in the past two years to slow credit growth and increase scrutiny over the property market. In recent weeks, Chinese authorities have stepped up their rhetoric on the need to accelerate construction of public housing. The top economic-planning agency said in June it would make it easier for local governments and companies to issue bonds to fund public-housing construction. Earlier this week, finance minister Xie Xuren said China will step up investment in public housing and ensure that construction quality meets standards. But questions remain over the funding issue. For example, China plans to build 10 million public housing units this year to low-income residents at an estimated cost of around CNY1.3 trillion ($202 billion). But only CNY500 billion will come from the government, according to the housing ministry, with the rest coming from property developers, private investors and potential home buyers. The CBRC, in its latest announcement, did make a concession to limiting risk to the banking system as it supports public housing, however, as it encouraged banks to extend credits in the form of syndicated loans.