NEWS  /  Analysis

Chinese Local Governments Required to Establish 'Housing Pensions'

By  xinyue  Aug 27, 2024, 5:59 a.m. ET

The primary purpose of these public accounts is to provide financial resources for safety inspections and maintenance of public housing.

AsianFin--China’s Ministry of Housing and Urban-Rural Development recently announced that it is exploring the feasibility of a comprehensive housing maintenance system, which includes property evaluations, a "housing pension," and housing insurance.

Shanghai and 22 other cities have already begun piloting related projects. These local governments are working to establish public funds for the housing pension alongside the existing personal accounts held by property owners.

The personal account system is based on China's special housing maintenance fund, which has been in operation for over 20 years. Under this system, residents will not be required to make additional payments beyond their current obligations.

A key aspect of the housing pension system reform is the creation of public accounts. The primary purpose of these public accounts is to provide financial resources for safety inspections and maintenance of public housing.

The pilot cities, with a focus on ensuring residents' safety, are utilizing government-raised funds to establish these public accounts. This initiative is seen as critical in filling the gaps in China's housing safety management mechanisms, which have long been a concern due to aging buildings and hidden safety risks.

In addition to the public accounts, the housing pension system will include personal accounts, though the bulk of the funding for the new system will be sourced from government-initiated public accounts.

According to the principle of "not increasing personal burdens and not reducing personal rights and interests," local governments will explore various fundraising channels to establish these accounts in their regions. Importantly, the creation of the housing pension public accounts will not impose additional financial burdens on property owners.

However, the need for reform is pressing. Due to gaps in housing safety management and significant risks posed by aging buildings, the government must take on greater responsibility to ensure the safety of existing homes. The implementation of the housing pension system is seen as a crucial step in this direction.

It is worth noting that most of the pilot cities are first- and second-tier cities with relatively strong financial conditions. However, with the national economy under significant downward pressure and many local governments facing financial difficulties, it remains uncertain how these regions will successfully raise the necessary funds to establish public accounts as part of the reform.

For homeowners, the housing pension system provides peace of mind in their purchases. For the government, it establishes a clear funding source and usage mechanism for daily housing operations and maintenance, facilitating efficient management, said Yu Xiaoyu, General Manager of the Yihan Think Tank Research Center.

In the long run, the housing pension could influence the value of older buildings, particularly those that did not accumulate sufficient maintenance funds in the past, said Zhang Bo, head of the Anjuke Research Institute.

Zhang noted that many older buildings lack adequate housing pension-related funds, and their maintenance funds have been drawn down multiple times, leaving limited balances. As a result, future supplementary payments into the housing pension system may be required, which could pose a significant challenge.

 

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