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Text: Ren Zeping Team

Introduction

In order to optimize the existing stock and reduce inventory, it is possible to consider establishing a housing security bank to purchase developers' inventory for affordable housing.Kill multiple birds with one stone: 1) Save unfinished buildings and avoid residents paying for them; 2) Save high-quality real estate companies, open up cash flow and avoid financial risks; 3) Save market confidence and help restart the market, as the current real estate market is clearly over-adjusted; 4) No more land will be allocated to build rental housing and affordable housing, which will avoid waste and help improve people's livelihood. (《On the conception of establishing a housing bank》）

The operation mode can be established at the national level or at the local level. Where does the money come from? It can be mortgaged by the project, state-owned banks can provide interest-subsidized loans, or ultra-long-term government bonds can be issued, or financial support tools similar to PSL can be made.

Germany, Singapore, the United States and other countries have successful practices of housing security banks.There are three models: the housing mortgage asset securitization model represented by the United States and Japan, Fannie Mae and Freddie Mac; the housing voluntary savings model represented by Germany; and the housing compulsory savings (provident fund) model represented by Singapore, whose public housing estates are very successful.

There are still differences in the sources of funds and prices for the establishment of a housing security bank to collect and store existing housing, but this is the right direction, and the key lies in the intensity and implementation.I believe that through substantial and effective measures, the real estate industry will be able to avoid a hard landing and achieve a soft landing, contributing to economic recovery and improvement of people's livelihood.

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1. The necessity of establishing a housing security bank and government storage of commercial housing

The establishment of a housing security bank and the government’s storage of commercial housing have sufficient policy basis at the central level and rich practical experience at the local level.

Since 2013, the central government has repeatedly sent out signals about establishing a national housing security bank and encouraging the government to purchase commercial housing.In 2013, the Third Plenary Session of the 18th CPC Central Committee proposed in the “Decision of the CPC Central Committee on Several Major Issues Concerning Comprehensively Deepening Reform” that “the establishment of policy-based financial institutions for urban infrastructure and housing should be studied”. In 2014, the State Council Executive Meeting proposed that “the National Development Bank shall establish a special institution, implement separate accounting, and adopt a market-oriented approach to issue special bonds for housing finance”. In 2018, the National Development and Reform Commission proposed that “the establishment of a national housing policy financial institution should be studied”. In 2024, it was proposed that “Comprehensively study policy measures to digest existing real estate and optimize incremental housing”。

Local governments have successively introduced policies to revitalize existing housing and promote inventory reduction.The time points when local governments issued policies to repurchase commercial housing were mostly when inventory was high and it was difficult to sell. In 2014, many places piloted the government's repurchase of commercial housing as resettlement housing. In July 2022, Zhengdi Leasing purchased existing housing within the Fourth Ring Road of Zhengzhou as talent apartments; in September, Jinan Chengfa publicly purchased 3,000 commercial housing units as rental reserves; in October, Suzhou repurchased about 10,000 new houses in 6 districts and 4 counties and cities; Huzhou, Handan, Altay and other cities also issued policies to encourage the conversion of existing housing into guaranteed rental housing.In April 2024, Zhengzhou announced plans to complete the "sell old and buy new, old for new" of 10,000 second-hand houses by 2024, of which 5,000 will be directly purchased by local state-owned assets. In May, the Lin'an District Government of Hangzhou purchased commercial housing from developers for use as public rental housing. Dali encourages the acquisition of existing housing as guaranteed rental housing or talent housing.

The establishment of a housing security bank and the government's purchase and storage of commercial housing are of great significance:

1) Alleviate the financial pressure on developers and prevent the spread of industry risks.Since the second half of 2021, risks of real estate companies have continued to be exposed, industry transactions have been sluggish, and even high-quality leading real estate companies are facing cash flow pressure caused by slowing sales. The government's purchase of unsold commercial housing can directly provide financial support to developers, alleviate the cash flow pressure of real estate companies, and avoid the spillover of risks of real estate companies.

2) Improve people’s livelihood, boost confidence, and meet reasonable housing needs.The key to resolving the real estate crisis lies in the restoration of confidence on the demand side. Only when confidence is boosted can sales pick up. The lack of confidence on the demand side stems from weak employment expectations and lack of confidence in developers. By establishing a housing security bank and the government purchasing commercial housing and converting it into affordable housing, low-interest loans and guarantees can be provided to home buyers to meet the reasonable housing needs of low-income families and new citizens.

3) Resolve inventory, stabilize housing prices, stabilize the market, and stabilize the economy.The era of large-scale real estate development has come to an end. The market has entered an era dominated by existing housing and is facing adjustments and differentiation. The adjustment is to digest the previous high housing prices, high inventory, and high leverage. Real estate is the largest pillar industry of the national economy, which is related to economic recovery and financial risks. my country is currently in a critical stage of transformation from old to new drivers. If the real estate is stable, the economy will be stable. The government's purchase of commercial housing is conducive to destocking, stabilizing housing prices, stabilizing the market, and restoring the economy.

4) Optimize the supply structure of the real estate market, ensure that there is a market for the high-end, support for the mid-end, and guarantees for the low-end.In my country's real estate market, there is a phenomenon that "commercial housing is relatively mature, while affordable housing and rental housing are relatively small in scale". The government's acquisition of commercial housing and its conversion into affordable housing can optimize the supply structure of the real estate market, meet the needs of groups at different income levels, and form a pattern in which high-end housing has a market, mid-end housing has support, and low-end housing has guarantees.

2The key to China's housing security bank: where does the money come from

1) Operation model: First, learn from overseas experience to provide low-interest loans; second, collect and store developers' land and commercial housing inventory for use in affordable housing.

Low-interest loans: With “housing for all” as its long-term goal, the Housing Security Bank provides inclusive and preferential loans to eligible homebuyers.Housing security banks focus on fulfilling social security functions. Therefore, similar to housing security banks in developed countries, the ultimate goal of China's housing security banks is to provide "housing for all" and provide long-term, stable and low-cost housing loans to eligible homebuyers. How to define whether they meet the conditions? Homebuyers can be divided into basic housing credit and housing investment credit based on the number of ordinary housing units, per capita housing area of ​​the family, per capita housing amount of the family, etc., and preferential interest rates can be applied to the former; the latter will be managed by commercial banks. How to manage the stock and increment? New methods can be implemented for new loans and old methods can be implemented for old loans. At the same time, the maximum proportion of commercial bank mortgage loans can be set to gradually reduce the scale of commercial bank mortgage loans.

Acquisition of land and housing: With “destocking” as the short-term goal, the Housing Security Bank uses special funds to purchase developers’ land and commodity housing inventory at appropriate prices for rental housing and security housing.Since the second half of 2021, many real estate companies have been in danger and their capital chain has improved slowly, and the situation of guaranteeing the delivery of buildings is grim. At present, guaranteeing the delivery of buildings is the top priority. A housing security bank should be established, and special funds should be set up to purchase the land and commercial housing inventory of developers. Developers must guarantee the delivery of buildings after receiving funds. This can prevent unfinished projects and avoid letting home buyers bear the risk of real estate adjustments. Real estate companies have excess funds from repayments, which can be used to acquire land, land finance will be restored, local debt pressure will be alleviated, and infrastructure is expected to pick up. The acquired inventory of commercial housing and land will be used for rental housing and affordable housing, which will help improve people's livelihood. Developers already have so much inventory. If additional land is supplied for rental housing, it will lead to huge waste and kill two birds with one stone.

2) Where does the money come from? Subsidized loans from state-owned banks, ultra-long-term government bonds, and PSL-like financial instruments.

Subsidized interest loans from state-owned banks: Apply for subsidized interest loans from state-owned banks by using the purchased commercial housing as collateral or pledge.At present, interest-subsidized loans for real estate are mainly used on the demand side. In December 2023, Linping District, Hangzhou, Zhejiang, issued a policy of interest-subsidized housing loans, providing interest subsidies of 1 million yuan for loans exceeding 1 million yuan, with a subsidy period of 36 months. If the government can obtain interest-subsidized loans during the acquisition of existing housing, the acquisition cost will be greatly reduced, alleviating local fiscal pressure.

Ultra-long-term government bonds: Ultra-long-term government bonds are issued to local governments for acquisitions to ease local fiscal pressure.The 2024 government work report proposes that starting from this year, it is planned to issue ultra-long-term special government bonds for several consecutive years, which will be used specifically for the implementation of major national strategies and the construction of security capabilities in key areas. This year, 1 trillion yuan will be issued first. Ultra-long-term special government bonds with a term of 20-50 years will not be included in the deficit, will not increase local debt pressure, and are highly compatible with the government's purchase of commercial housing for use as affordable housing.

PSL-like financial instruments: PSL is an important source of funds for the monetary resettlement stage of shantytown renovation.As one of the monetary policy tools of the central bank, PSL mortgage supplementary loans played an important role from 2015 to 2018. China Development Bank and other policy banks have provided a large amount of stable and low-cost funds for shantytown renovation through PSL. The government can also consider PSL-like financial instruments when purchasing commercial housing. Policy banks provide funds to support local government acquisitions, and the acquired houses are sold or rented out, and the loans are repaid after the funds are recovered.

3) What is the purchase price? It may be 30% to 15% off the market price.According to the experience of some local governments in stockpiling, in 2022, the price of Zhengdi Leasing's stock housing acquisition was about 15% off the market price. In May 2024, the Lin'an District Government of Hangzhou required that the entire building be unsold when acquiring commercial housing. Based on this, it can be judged that the acquisition target may have poor location and supporting facilities and poor liquidity, and the acquisition price may be about 70% of the market price.

3. Lessons from others: Three major models of housing loan securitization + voluntary housing savings + compulsory housing savings

3.1 The US House and Chambers Model: Housing mortgage securitization under implicit government guarantee to improve mortgage liquidity

Housing banks in the United States include the Federal Home Mortgage Bank (FHLB), Fannie Mae, and Freddie Mac. The two houses (Fannie Mae + Freddie Mac) are an important part of the U.S. housing market, and the proportion of housing loans they hold or guarantee has reached as high as 80%-90%.In terms of primary and secondary markets,

The primary market is the Federal Home Mortgage Bank (FHLB) established by the US government after the Great Depression in 1933 to provide long-term, low-interest mortgages to home buyers.

The secondary market is Fannie Mae and Freddie Mac. Fannie Mae (FNMA) was established by the U.S. Congress in 1938 as part of Roosevelt's New Deal. Its purpose was to provide stable and continuous support for the housing mortgage market, improve the availability of housing mortgages, increase the home ownership rate of residents, and achieve the goal of "everyone has a home". In 1970, in order to prevent Fannie Mae from continuing to monopolize the secondary mortgage market, Freddie Mac (FHLMC) was established, which is consistent with the purpose of Freddie Mac.

Fannie Mae and Freddie Mac formed a duopoly in the secondary mortgage market in the U.S. In 2007, the housing loans held or guaranteed by the two housing agencies accounted for about 40% of the U.S. real estate market. After the subprime mortgage crisis, this proportion was as high as 80%-90%.

The main advantages of the two-room model in the United States are:

1) Innovatively launch housing loan securitization products to significantly increase the liquidity of housing loans in the secondary market and reduce the cost of buying a house.The biggest innovation of the two housing models is the securitization of housing mortgage loans. For financial institutions, they sell long-term and large-scale housing loans to the two housing agencies through the secondary mortgage market, and then lend the funds back. Compared with the previous "loan-loan recovery-reloan" model, the capital recovery cycle is greatly shortened and the liquidity of housing loans is improved. For the two housing agencies, they purchase and hold or securitize housing mortgage loans and sell them to investors, allowing them to raise funds at a lower cost.

2) With implicit guarantee from the U.S. government, the financing costs of the two housing agencies are low, the bond liquidity is strong, and the government’s fiscal spending pressure is relatively small.Although Fannie Mae and Freddie Mac went through privatization in the 1970s, they continue to enjoy implicit government guarantees because they have assumed social security responsibilities required by the US government. For example, Fannie Mae securities can be used as collateral in repurchase transactions with banks in the Federal Reserve system, enjoy the same treatment as US Treasury bonds, and are exempt from registration with the US Securities and Exchange Commission. Due to the implicit government guarantee, the two housing agencies have natural advantages in financing. First, the financing interest rate is low, and the risk of the bonds issued is second only to that of government bonds; second, the liquidity is strong, and there are many bond investors, including central banks, insurance companies, pension funds, etc. Based on the financing advantages, the two housing agencies basically do not need fiscal investment for their funding sources.

3.2 Japan Housing Bank: fiscal dependence model before the crisis, and transformation to the US market-oriented model after the crisis

After World War II, the Japanese government established the Housing Finance Corporation (GHLC). GHLC relied on the government's fiscal investment and financing system to support housing reconstruction financing. As the real estate bubble burst, GHLC's operations deteriorated and gradually shifted to the American "two-house" model.In 1950, in order to accelerate economic recovery and social reconstruction after World War II, the Japanese government established the Housing Finance Corporation to provide medium- and long-term low-interest loans to real estate companies and residents. The Housing Finance Corporation is highly dependent on fiscal funds. For example, funds raised by the national credit, such as Japan Postal Savings and National Pension, are all used to support the Housing Finance Corporation. Since 1965, Japanese commercial financial institutions have entered the real estate market and formed a competitive relationship with policy financial institutions; the bursting of the real estate bubble in the 1990s triggered a wave of early repayments, which posed a huge challenge to the operation of the Housing Finance Corporation. On the one hand, there is no penalty for early repayment by housing mortgage borrowers of the Housing Finance Corporation; on the other hand, after early repayment, the Housing Finance Corporation needs to pay a penalty to the fiscal transfer loan institution (FILP). In order to cope with the early repayment trend and ease fiscal pressure, since 2000, the Housing Finance Corporation has gradually aligned itself with the two housing models in the United States. In 2003, it purchased mortgage loans from commercial financial institutions and issued MBS.

In 2007, the Housing Finance Corporation was restructured into the Housing Finance Support Agency (JHF), with its focus shifted to housing loan asset securitization, forming a business model with housing mortgage loan asset securitization as the main business, and housing loan insurance and housing loan businesses as the auxiliary businesses.1) Housing mortgage asset securitization business, that is, providing support for long-term fixed-rate housing loans of commercial financial institutions through house purchase or guarantee, accounting for 97% of all business applications. There are two specific ways. One is to directly purchase long-term fixed-rate loans from financial institutions and securitize them, which accounts for 84.5% of business applications. The second is to provide guarantees for long-term fixed-rate housing loans after securitization to ensure repayment of principal and interest to investors. 2) Housing loan insurance business, that is, providing housing loan guarantees for commercial financial institutions to ensure that financial institutions can continue to provide housing loans. 3) Housing loan business, directly providing loans to specific home buyers. However, the threshold is high, and it mainly serves homebuyers that commercial financial institutions cannot cover, such as post-disaster reconstruction housing, old housing that needs to be rebuilt and renovated, and green zero-emission housing.

After the reconstruction, the marketization degree of the housing bank has been significantly improved and the dependence on fiscal funds has been greatly reduced. From 2011 to 2022, the proportion of fiscal funds has dropped from 57.2% to 4.4%.One of the goals of the Housing Finance Support Agency is to get rid of the original housing finance treasury's dependence on fiscal funds and achieve a more fully market-oriented operation. After 15 years of operation, it has basically achieved this goal. In 2011, fiscal loans and government-guaranteed bonds accounted for 57.2% of the funding sources of the Housing Finance Support Agency, and funds obtained from issuing MBS accounted for 32.9%; in 2022, the former dropped to 4.4%, and the latter increased to 66.8%.

3.3 German housing savings model: professional management, extensive participation, deposit first and then loan, fixed low interest

The German housing finance system operates a unique housing savings model.In 1885, Germany established its first continuously operating housing savings institution, the "National Housing Savings Society". After the end of World War II, Germany faced not only a housing shortage but also a severe shortage of funds. Almost all government funds were invested in industrial and commercial investment to revive the economy, making it difficult to provide sufficient funds for housing construction. Therefore, the self-sufficient housing savings model has been widely and rapidly developed.

The characteristics of the German Housing Savings Bank are:

1) Professional management and closed capital loop.German housing savings institutions are professionally managed and are not allowed to engage in any other risky financial business except housing savings. They can purchase low-risk securities such as government bonds, but credit funds can only be used to provide residents who participate in housing savings with loans for purchasing, building, and renovating houses.

2) Voluntary savings. The government provides subsidies to low-income residents.Housing savings is a voluntary contract that aims to achieve self-help through mutual assistance. The threshold for participation in this savings method is low, and only the minimum contract amount and the minimum deposit period requirements need to be met. Low-income residents can also participate in the housing savings system, and the government provides two types of savings subsidies. First, for single (dual-income) housing savings families with an annual income of no more than 25,600 euros (51,200 euros), the government will provide a matching reward of 8.8% for the part of the monthly deposit that does not exceed 512 euros (1,024 euros), with a maximum reward of 45 euros/month (90 euros/month). Secondly, for single (dual-income) housing savings families with an annual income of no more than 17,000 euros (35,800 euros), the government will provide a matching reward of 9% for their housing savings, with a maximum subsidy of 43 euros/month (86 euros/month).

3) “Deposit first, then loan”, and allocate loans fairly.Residents sign a housing savings contract with housing savings institutions, agreeing on the contract amount, deposit term and loan term. The contract amount is about twice the planned loan amount, the deposit term is about 8 years, and the loan term is 10-11 years. According to the contract, the applicant first makes a monthly deposit (about 0.48% of the contract amount). When the deposit term expires, the total deposit amount after adding interest reaches 50% of the contract amount, meeting the loan allocation conditions and entering the loan allocation queue. Housing savings institutions evaluate applicants who meet the loan allocation conditions based on indicators such as deposit term, repayment contribution, and interest rate, and those with higher evaluation values ​​are given priority. After the loan is issued, the applicant repays the loan monthly, and the monthly repayment amount is about 0.5-0.6% of the contract amount.

4) Low-interest loans, providing long-term stable fixed low interest rates.Schweibihauer Bank, Germany's largest housing savings institution, offers a standard product with a loan interest rate of only 2.15%, an 8-year savings period and a 10-year repayment period. Since housing savings funds circulate only between institutions and participating residents, the interest rate is not affected by the external capital market, and a long-term stable low-deposit and low-loan fixed interest rate system can be implemented, with the deposit-loan interest rate spread maintained at 2 percentage points. This low loan interest rate combined with government rewards has made housing savings contracts with low deposit rates an important investment tool for German residents. More than 1/3 of residents participate in housing savings, providing ample low-cost funds for the development of the housing savings model.

3.4 Singapore Housing Provident Fund Model: Implementing a compulsory savings-based central provident fund system, closed management, separation of deposits and loans, high deposits and low loans

Singapore established the Central Provident Fund system in 1955, initially serving the elderly, and began to be used for housing in 1968.In 1955, the British colonial government established a compulsory savings-based Central Provident Fund system in order to evade its pension responsibility for local civil servants in Singapore, and set up the Central Provident Fund Board to manage it. After 1968, the "Home Ownership Scheme" was implemented, and the Provident Fund began to be used to purchase public housing, and in 1981 it was expanded to private homes. Currently, the Central Provident Fund system has become a comprehensive social security system that covers pension, housing, medical care, family protection, children's education, etc.

A compulsory savings-based central provident fund system is implemented, with an extremely high contribution rate.According to the Central Provident Fund Act, all citizens and permanent residents of Singapore, whether employees or employers, must pay the Provident Fund on a monthly basis. No one may refuse or delay payment, otherwise they must pay the full amount and add penalty interest. Except for buying a house and some investments, the Provident Fund deposits can only be used after the employee retires, and members have no right to decide the length of the Provident Fund deposits. In addition, the Provident Fund contribution ratio is extremely high, with a peak of up to 50% (25% for employees and employers respectively), and is currently stable at 37% (20% for employees and 17% for employers), which is much higher than Hong Kong (10%), China Mainland (24%) and other regions that also implement a compulsory savings-based Central Provident Fund system, but it will decrease moderately as the age of employees increases, such as 29.5% for 55-60 years old (15% for employees and 14.5% for employers), and 20.5% for 60-65 years old (9.5% for employees and 11% for employers).

The provident fund has a very wide coverage, guarantees a full range of projects, and implements closed-loop management to ensure that funds are used for their intended purposes.The Central Provident Fund covers a wide range of people. Due to the requirement of compulsory savings, the coverage rate has increased from 22% in 1965 to 103% in 2022, and the total number of members has also increased from 418,000 to 4.2 million. The protection items are comprehensive, divided into four major accounts, and the funds are used for specific purposes, covering a wide range of fields such as retirement, medical care, housing, family protection and asset appreciation. In addition, Singapore's "Central Provident Fund Act" strictly restricts the withdrawal and investment of provident funds: first, the implementation of the minimum deposit amount regulations, when members use ordinary accounts and special accounts for capital investment, they must ensure that the account specifies the limit (ordinary accounts must not be less than 20,000 Singapore dollars; special accounts must not be less than 40,000 Singapore dollars); second, members must return the investment income from the provident fund account to their personal accounts; third, when members withdraw from retirement, the ordinary account and health care account must guarantee the specified amount for transfer to the pension account. In addition, since the provident fund is divided into four major accounts, the scope of use of each account is limited to the corresponding field to ensure that the funds are used for specific purposes.

Adopt closed management, "separation of deposits and loans, high deposits and low loans".The Central Provident Fund (CPF) of Singapore is the institution responsible for managing the provident fund. Its responsibilities include the payment, payment, management and value preservation of the provident fund. However, CPF does not directly issue provident fund loans, but instead purchases government bonds and hands them over to the Government of Singapore Investment Corp (GIC). GIC then invests the accumulated provident fund in domestic public housing and infrastructure construction. After obtaining these funds, the Housing and Development Board (HDB) of Singapore issues low-interest loans to home buyers. The interest rate of provident fund deposits is relatively high, 2.5% for ordinary accounts and 4% for special, medical and retirement accounts, which is higher than the five-year government bond yield (2.19%) and commercial bank fixed deposits (1.2%) in the same period. In addition, the first S$60,000 of the total provident fund amount and the first S$30,000 of members aged 55 and above can also receive an additional 1% interest rate. In contrast, the interest rate of provident fund loans is lower, generally 0.1% higher than the housing provident fund deposit rate. Since 1993, the loan interest rate has remained stable at 2.6%.

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