The previous article examined the industry context of affordable housing policies. This article will analyze the funding sources of China's affordable housing policy, as an important means for the government to regulate the real estate market and solve the housing problems of low- and middle-income groups, its fund raising, distribution and use have attracted much attention from all walks of life.

The following research will be used as a reference for policymakers through detailed data analysis and theoretical research.

Source of funding: Led by policy funds, with the participation of social capital

Circular No. 14 clearly stipulates three major sources of funds: central government subsidy funds, local special bonds, and provident fund development loans. Looking ahead, the financing channels for affordable housing will be more extensive, PSL and housing provident fund loans will be restarted again, the issuance of REITs will be steadily promoted, TOD and other urban development models will be equipped with affordable housing at the same time, and the all-round financial service system will support the long-term construction planning of affordable housing.

Special bonds have added new investment in affordable housing, and the resumption of PSL loans has boosted confidence

Local government fiscal expenditure is an important source of funding for the construction of affordable housing, and 96% of the country's affordable housing projects come from local finance. As of October 2023, the amount of new special bonds invested by local governments in affordable housing projects was 469.001 billion yuan, a year-on-year decrease of 24.89%. In 2024, the investment direction of special bonds will remain unchanged in 10 major areas, but two new investment directions will be added in the field of affordable housing projects: urban village renovation and affordable housing.

PSL will restart in December 2023, which is expected to replenish the funds for the construction of affordable housing. In December 2023, China Development Bank, Export-Import Bank of China, and Agricultural Development Bank of China added RMB350 billion in net new collateral supplementary loans (PSL), and the balance of collateral supplementary loans at the end of the period was RMB3,252.2 billion. The net new increase of 350 billion yuan in a single month is the second highest level in history, second only to November 2022.

Referring to the historical PSL investment, it is expected that the PSL will mainly invest in the "three major projects" of affordable housing, urban village renovation and "peacetime and emergency" public infrastructure construction.

The REITs policy has been further refined, and social capital has helped the construction of affordable housing for a long time

The pressure of local government bonds is still there, and REITs can provide a long-term and stable source of funds for the construction of affordable housing. In May 2022, the China Securities Regulatory Commission (CSRC) and the National Development and Reform Commission (NDRC) once again issued the Notice on Regulating the Pilot Issuance of Affordable Rental Housing and Real Estate Investment Trusts (REITs) in the Infrastructure Sector, to promote the standardized and orderly development of the affordable rental housing REITs business, which means that the pilot of affordable rental housing REITs was officially launched.

In 2022, it successfully issued 4 affordable housing REITs, and its China Taijun An Chengtou Kuanting REIT was publicly offered on December 22, 2023, with a scale of 3.05 billion yuan, which is the largest product issued so far.

Commercial banks will increase their support for loans to the leasing market

On January 5, 2024, the People's Bank of China and the State Administration of Financial Supervision and Administration issued the Opinions on Financial Support for the Development of the Housing Rental Market, supporting enterprises and eligible public institutions to purchase stock idle houses in bulk in accordance with laws and regulations for use as dormitory-type affordable rental housing, and supporting specialized large-scale housing rental enterprises to purchase stock idle houses in bulk in accordance with laws and regulations for long-term holding and operation of affordable or commercial rental housing.

Support commercial banks to issue development and construction loans to all types of entities for new construction and renovation of long-term rental housing, generally for 3 years, and not more than 5 years.

If a housing leasing enterprise operates long-term rental housing with its own property rights, the term of the housing lease operating loan shall not exceed 20 years, and the loan amount shall not exceed 80% of the appraised value of the property in principle.

Housing leasing enterprises shall renovate non-self-owned leased housing such as industrial plants, commercial office buildings, and urban villages in accordance with laws and regulations, and the term of the operating loan shall not exceed 5 years, and the loan amount shall not exceed 70% of the total rent receivable.

In January 2023, the People's Bank of China (PBOC) set up a 100 billion yuan rental housing loan support plan, which is a structural monetary policy tool specially set up by the People's Bank of China (PBOC) to support the seven banks of the People's Bank of China to issue loans to eight pilot cities: Chongqing, Jinan, Zhengzhou, Changchun, Chengdu, Fuzhou, Qingdao and Tianjin. In principle, the loan interest rate shall not exceed 3%, and the central bank will provide financial support at 100% of the loan principal for loans that meet the requirements, with an interest rate of 1.75%.

The TOD model is combined with rental housing, and social capital participates in investment and construction

TOD projects refer to projects built in a transit-oriented development mode, which has the natural advantage of combining with the construction of rental housing. From the perspective of investors, local trading investment groups and rail groups are actively deploying TOD projects, and leading real estate companies are also participating. Due to the construction of rental housing in TOD projects, there are high requirements for corporate capital and operational capabilities, and at present, Vanke, Longfor, Yuexiu, China SCE and other real estate companies are more involved.

In the "14th Five-Year Plan for Urban Construction of Chengdu", Chengdu clearly plans to raise 300,000 units (rooms) of affordable rental housing during the "14th Five-Year Plan" period, and complete 14 TOD demonstration projects, of which 50,000 units of affordable rental housing will be built. Among the more than 10 TOD comprehensive development projects at present, Chengdu has raised more than 20,000 units of affordable rental housing, and the first batch of projects will be topped out in 2023 and are expected to be put into use in 2024.