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Huge housing fund in the wings

By Yu Hongyan (chinadaily.com.cn)
Updated: 2008-10-22 18:19

Following a series of economic stimulus packages recently, a long suspended plan to set up a welfare housing fund could arouse public interest anew.

Fiscal policy is indispensable to further stimulate the economy, said Wang Jian, secretary of the economics association of National Development and Reform Commission.

In the light of the market saturation of infrastructure, and over-productivity in industries like steel and power, investment of trillions of yuan in the affordable housing market will provide a means to boost domestic consumption. It will also take up over-productivity in steel and cement industries, said Wang. .

His remarks coincide with a previous proposal jointly raised by the National Council for Social Security Fund (SSF) and Ministry of Housing and Urban-Rural Development early this year.

The proposal suggested a welfare housing market worth more than 1 trillion yuan ($146.17 billion), which reportedly won the nod from top leaders. However, it remains in discussion due to dispute from other ministries.

The proposal suggested accelerating the construction of welfare houses, with the huge investment being raised mainly from the national security fund (200-300 billion yuan), treasury allocation (200 billion yuan) and the housing provident fund.

Insiders say that should the fund be established, welfare houses could be provided to low-income groups far below the market rates, given the specialty of the fund and a supportive policy on land and taxes. An initial estimation shows housing demand from the low-income group may now surpass 30 million units.

Xiang Huaicheng, the former minister of finance and the former director of the SSF told China Business News that the clarification of fiscal investment would be crucial for the fiscal policy to go proactive. He personally recommended investment in the affordable housing project and railway construction.

A spokesman from SSF said their proposal was just an suggestion, with SSF as only one of the participants. However, sources believe it is an opportunity for the SSF to transform itself and become the manager of the welfare housing fund.

Founded in 2000, SSF aims to solve the problem of an aging society and serves as a strategic reserve fund accumulated by the central government to support future social security expenditures. However, due to a lack of explicit regulation on capital allocation and operation, SSF has only seen its social security fund increase at a slow pace.

As a governmental agency, it is also overshadowed in market operation and talent reserve, compared to its counterpart, China Investment Corporation (CIC), the country's sovereign wealth fund, which stands alone by the volume of its fund and market operation.

Nonetheless, with SSF's years of experience in fund management and a moderate investment policy, some insiders regard it as the right choice to run the welfare housing fund should it be set up, which also helps SSF and CIC to define their positions.

Liu Kun, an analyst from Sinolink Securities, believes the possible impact on the property market after the setup of the fund will be limited. He reasons it is years since the government carried out plans to promote welfare housing construction, but there has been little progress until now.

In addition, considering the income gap between the group applying for the welfare apartments and those purchasing commercial apartments, the welfare housing fund would not threaten the commercial housing sector, said Liu.