Provident fund reform to spur consumption

China's latest reform of its housing provident fund system is expected to further unleash residential property-related consumption potential and help the housing industry gain a more solid footing in its recovery, experts said, as the sector remains in the midst of a broader adjustment.

Their comments came after the State Council, the country's Cabinet, issued a decision on Tuesday to amend the regulations on housing provident fund management, with the changes set to take effect on Sept 20.

The fund, a long-term housing savings program made up of mandatory monthly contributions by employers and employees, can be tapped for a wider range of housing-related expenses under the revised rules, which also allow flexible workers to participate voluntarily and facilitate cross-regional account transfers.

Lou Feipeng, a researcher at Postal Savings Bank of China, said the revision is the most extensive since the regulations were introduced in 1999.

"By easing the financial burden on homebuyers, the changes could release pent-up demand and help shore up market confidence in the near term," Lou said, adding that over time the reform will help promote a healthier balance between renting and buying, and spur spending linked to existing housing stock.

The revised rules also allow account holders to draw on their savings in nine situations, up from six, according to the State Council.

The additions cover renovations to owner-occupied homes, property management fees and other housing-related consumption approved by the State Council.

Meanwhile, for those withdrawing from the housing provident fund to pay rent, the eligibility threshold requiring rent to exceed a prescribed proportion of a household's wages will be rescinded.

"The changes would ease pressure on household budgets and support spending on home improvements and property services," said Xiong Yuan, chief economist at Guosheng Securities.

The decision also simplifies procedures for housing provident fund withdrawals and shortens the review period for loan applications.

Contribution records will be recognized nationwide, making it easier to transfer housing provident fund accounts and apply for loans across urban areas.

Xiong said the broader range of permitted uses and shorter loan review times should better support demand from first-time buyers and home upgraders.

Rather than trigger an immediate, broad-based turnaround, the measures are more likely to shore up demand and improve conditions in specific market segments, he added.

Self-employed individuals, part-time employees and other flexible workers will also be allowed to voluntarily contribute to housing provident funds and receive corresponding policy support, according to the decision.

"Bringing these workers into the system will make it less costly for them to settle in cities," said Yu Xiaofen, dean of the Chinese Academy of Housing and Real Estate at Zhejiang University of Technology.

Yu also added that wider coverage would better meet the rental and homebuying needs of flexible workers while supporting China's new urbanization drive.

The amendments also specify that "interest rates on housing provident fund deposits and loans shall be determined by the State Council" — a provision that could pave the way for more flexible rate adjustments in the future, said the China Index Academy, a property research institution.

The policy move comes as ongoing weakness in the country's real estate sector continues to weigh on the broader economy.

Property development investment fell 19.2 percent year-on-year in the first seven months, according to the National Bureau of Statistics.

With nationwide housing provident fund account balances exceeding 10 trillion yuan ($1.48 trillion), putting more of the money to use could support housing demand and lift spending on related goods and services, Lou added.

To translate that potential into actual demand, Lou called for faster nationwide recognition of contribution records, a dynamic interest-rate mechanism tied to provident fund loan-to-deposit ratios, and more flexible contribution options and incentives for self-employed individuals, part-time employees and other flexible workers.

Contact the writers at zhangchenxu@chinadaily.com.cn