Housing Financing at the Crossroads: Access and Affordability in an Aging Society

Abstract

The property sector plays an important role within China’s economy. The housing market accounts for about a quarter of Chinese GDP. Any swings in property prices have therefore a considerable impact on economic growth and stability in China. Despite having laid the foundations for a market-oriented housing and housing finance system, the government has retained a strong grip on the sector through administrative measures as well as a tight management of interest rates to influence the pricing of housing loans. To date, despite rising house price inflation (HPI), the government has managed to avoid the building up of a property bubble, influencing banks’ lending through tight regulations (especially interest rate fixings and loan-to-value limits). According to the latest research, it appears that challenging issues are supply-demand imbalances between smaller and larger cities due to restricted provision of land for construction of residential properties. Between July 2016 and March 2019, mortgage lending grew from RMB 16 billion to RMB 29.7 billion. It accounts for about 60% of total household debt and 19% of all bank loans (compared to 30% in Korea and 23% in Japan). The increased demand for mortgage loans is expected to place continued pressure on the housing market. With house prices still rising, the government may be encouraged to rethink this approach as lower income groups may face rising challenges to afford a home.