Authors: Huang Shulun and Li Rongde
Posted on: Caixin Global, April 25th, 2017
China’s housing fund has become less accessible to low-income groups because of an unwillingness of particularly private-sector employers to contribute to it and because of red tape, a study has found.
The fund, setup by the government in 1999 after the abolition of housing subsidies for workers, allows employees to save money towards home purchases. The deposits can be used as collateral for loans with lower interest rates than the market rate. Balances can also be withdrawn for down payments, construction and renovation, or to pay back a mortgage.
Chinese workers on average contribute about 10% of their monthly salary and employers add another 10% to the fund, which is managed by the Ministry of Housing and Urban-Rural Development.
But only about 30% of the contributors have benefited from the fund so far, due to red tape that makes it difficult to access the fund, according to a report released last week by Beijing Normal University’s China Institute for Income Distribution. Homebuyers must wait up to six months to access the fund, whereas a commercial loan takes only two to three months, researchers said.
There is also significant paperwork involved to withdraw money to cover mortgages and home remodeling costs, said Wan Haiyuan, vice director of Beijing Normal University’s China Institute for Income Distribution.
The study also found that the fund benefited high-income groups more than low-income earners, though the latter need more support. Soaring property prices, particularly in big cities, make it difficult for those in low-income brackets to buy a home, Wan said.
Nearly 5% of contributors in the top-fifth income tier had tapped into the fund, while less than 1% of low-income earners, or the bottom 20%, had accessed the fund, researchers found.
None of those who made 22,000 yuan a year applied to use the money in their housing fund, the report said. When workers’ incomes rose beyond 36,000 yuan, they tended to use the fund to help finance renovations or down-payments, it said.
Unlike other welfare programs, the housing fund has no social pool, and the entire amount goes directly to employees’ personal housing accounts. After retirement, the remaining balance can be withdrawn and used at will.
The number of workers who have contributed to the housing fund rose from 61 million in 2004 to 124 million in 2015. This accounted for about 40% of the country’s workforce, the report said.
However, some employers’ unwillingness to contribute to the fund has meant large swaths of workers, particularly in the private sector, have been shut out of the fund.
About two-thirds of workers in state-owned enterprises made payments to the fund, whereas less than 10% in the private sector did so, because their employers refused to contribute, the report said.
Nearly 90% of civil servants and employees at non-profit institutions backed by the governments, such as public schools and think-tanks, had a housing fund account, it said.
Regulators must introduce measures to ensure equal access to housing-fund benefits, including cracking down on employers who flout fund rules, and by cutting red tape, said Professor Liu Weimin from the Development Research Center of China’s State Council.