On June 12th, following the announcement of a ¥300 billion indemnificatory apartment refinancing on May 17th, the People's Bank of China held a promotion meeting on indemnificatory apartment refinancing and deployed the work to promote the implementation of indemnificatory apartment refinancing.

It is learned by Caixin reporters that Governor of the People's Bank of China Pan Gongsheng said in the meeting that for local governments who are willing to use indemnificatory apartment refinancing, future work can be promoted in various ways, such as establishing a working mechanism, setting up project screening, purchasing and classification links, and arranging appropriate financial and tax policy support within local authority.

Zou Lan, director of the Monetary Policy Department of the People's Bank of China, said at the meeting that the support field of indemnificatory apartment refinancing should achieve precise acquisition subject, precise acquisition object, precise acquisition usage, and precise capital usage. Experts analyzed to Caixin reporters that this promotion meeting has a positive effect on subsequent stock housing acquisition and increased supply of indemnificatory apartments, and is expected to accelerate destocking work in the second half of this year.

Why set up indemnificatory apartment refinancing?

On May 17th, the People's Bank of China announced the establishment of ¥300 billion indemnificatory apartment refinancing, with an interest rate of 1.75%, a one-year term, 4 possible extensions of one-year term, and a maximum usage period of up to 5 years. 21 nation-wide banks, including China Development Bank, policy commercial banks, state-owned commercial banks, Postal Savings Bank of China, and joint-stock commercial banks, are the receiving entities. Banks grant loans based on independent decision-making and risk assumption principles.

Today, Pan Gongsheng emphasized that indemnificatory apartment refinancing has three functions: firstly, promote destocking of stock commercial housing through market-oriented means; secondly, increase the supply of indemnificatory housing; thirdly, support the protection housing and "white list" mechanism.

"In recent years, there has been a significant change in the supply-demand relationship of the real estate market. Relying only on the market forces to spontaneously digest the stock has limited leverage, thus policy needs to support it in an appropriate manner. Against this backdrop, the central bank established a ¥300 billion indemnificatory apartment refinancing to support local state-owned enterprises to purchase finished stock commercial housing with reasonable prices for sale or lease as indemnificatory apartment," Pan Gongsheng said.

Zou Lan said that the support field of indemnificatory apartment refinancing should achieve four accuracy criteria: the acquisition subject should be precise, and one city government should select no more than two local state-owned enterprises as the acquisition subjects, and the selected state-owned enterprises and their affiliated groups should not be government financing platforms, and they should meet the credit requirements of commercial banks, persist in market-oriented operation, and strictly avoid the addition of implicit debts of local governments;

The acquisition objects should be precise, strictly limited to the unsold commercial housing built by real estate developers, and treating different property ownership real estate enterprises equally, with clear assets and liabilities and legal relationships, strictly controlling the purchased marketable apartment's dwelling patterns and area standards.

The acquisition usage should be precise. The purchased commercial housing should be used for indemnificatory housing, which should comply with the relevant guiding opinions. The capital usage should be precise, and the loan funds obtained by local state-owned enterprises should be singly accounted, separately calculated, specially used, and managed in a closed manner. The funds obtained from the sale of commercial housing by real estate enterprises should first be used to repay the debts of this project according to law; the remaining part can be used to repay the presale funds withdrawn by the group from other uncompleted projects in the city or for building the group's uncompleted project in this city.

For the subsequent promotion, Pan Gongsheng proposed suggestions at the meeting that city governments who are willing to use indemnificatory apartment refinancing can carry out six aspects of work: firstly, strengthen overall coordination, establish work mechanism; secondly, determine one or two local state-owned enterprises with strong professional operation capabilities as acquisition subjects; thirdly, establish project screening, purchase, and classification links, and strictly standardize operation; fourthly, arrange appropriate financial and tax policy support within local authority; fifthly, dynamically master the demand for indemnificatory housing distribution and renting, guide acquisition subjects to market-based selection of acquisition objects and cooperative banks; sixthly, strengthen supervision over the usage of funds loaned to acquisition subjects and the sale proceeds of real estate enterprises, and urge them to abide by laws and agreements.

Experts predict that the destocking of the real estate market will accelerate in the second half of this year.

The real estate industry is related to the overall economic operation and financial stability. Establishing indemnificatory apartment refinancing, encouraging and guiding financial institutions to support local state-owned enterprises to purchase finished stock commercial housing at reasonable prices for sale or lease as indemnificatory apartments based on market-oriented and rule-of-law principles, is an important measure taken by financial sector to implement the decision of the CPC Central Committee on coordinating stock housing digestion, optimizing increment housing, and promoting the construction of a new mode of real estate development. It will help promote the inventory of commercial housing through market-oriented means, increase the supply of indemnificatory housing, and support the protection housing and "white list" mechanism.

The meeting also emphasized that, following the principle of "government guidance and market-oriented operation", drawing on the experience of previous pilot projects, efforts will be made to promote the implementation and effectiveness of the policy of re-loans for indemnificatory housing and accelerate the destocking of existing commodity housing. Strengthen institutional guarantees and internal and external supervision, adhere to voluntary participation, purchase based on demand, reasonable pricing, ensure commercial sustainability, strictly avoid the addition of local hidden debts, and effectively prevent moral risks.

Yan Yuejin, research director of the E-House Research Institute, said that this meeting deepened the implementation of the policy spirit of May 17th, which means that financial support has officially entered the practical stage in such work. In addition, the meeting clearly supports local state-owned enterprises to acquire existing commodity housing at a reasonable price for allocation or leasing of indemnificatory housing, which has a positive effect on the acquisition of existing housing sources and the increase of indemnificatory housing supply in the next stage. According to the deployment of such work, it is expected that the destocking work will accelerate in the second half of this year, which has a very good guidance.