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Tapping pensions helps flat buyers

After contributing to the Chongqing municipal-government pension fund for six years, Lou Wei's dream of buying a home for her parents has finally come true.

That's because the government has relaxed its rules for withdrawals from the fund, to allow members to draw on their retirement accounts to help them fund the purchase of a home.

The decision, announced last month, meant the 29-year-old director of the integrated management centre at Centaline Property in Chongqing could withdraw 15,000 yuan (HK$18,300) from her account as a down payment on a home.

Under the revised regulations, members of the government's pension fund can also borrow up to 25 times the amount accumulated in their retirement account, up from 15 times previously, to help then finance a home purchase.

The pension loan ceiling has also been doubled to 400,000 yuan for an individual, and 800,000 yuan for a family, providing that the maximum loan amount does not exceed 80 per cent of the flat purchase price.

Applicants under the loan scheme will also be required to make a down payment of at least 20 per cent of a flat's value, compared to 30 per cent for those outside the scheme.

'The changes will definitely give a big helping hand to first-time homebuyers and encourage buying interest,' Lou said. 'The old rule of borrowing up to 15 times was unrealistic, as the amount was too small to buy a home.'

Chongqing is one of 21 cities that have begun rolling out small relaxations to policy measures taken to curb demand and price growth in the property market, based on the view that a healthy property market is essential to sustain local government revenues needed to fund infrastructure projects and expenses.

Lianyungang, Xinyang, Rizhao, Nanchang, Zhengzhou and Nanning have also relaxed regulations on pension fund withdrawals, while larger cities such as Shanghai, Tianjin and Xiamen have offered tax concession for first-time homebuyers.

Chongqing is not subject to Beijing's order that its residents may not buy more than two flats. But Lou said until the latest policy change on pension funds, she would have been forced to postpone her plan to buy another flat for her parents.

Based on the rule that she may borrow up to 25 times the 15,000 yuan she had in her pension account, Lou managed to secure a loan of 375,000 yuan from Industrial and Commercial Bank of China, which was appointed by the city's Pension Fund Management Centre to extend loans under the pension scheme.

With the loan approved under the new regulations, she was also able to add personal savings of 110,000 yuan to the small sum she withdrew from her pension fund, pay down 25 per cent of the purchase price of the new home, and finance the remaining 375,000 yuan with a 30-year term mortgage loan. For a total of 500,000 yuan, she bought a 750 sq ft, two-bedroom apartment.

Lou said her loan had an interest rate of 4.9 per cent, compared to 7 per cent for a conventional mortgage loan. Under the terms of the 30-year loan, she said her monthly repayment would be 2,100 yuan.

According to Chongqing government data, the Pension Fund Management Centre has so far approved loans totalling 4 billion yuan under the revised regulations, for the purchase of housing totalling 1.6 million square metres.

Andy Ho, sales director at Centaline Property Agency's Chongqing office, said developers of flats in the city's mass residential sector selling for 500,000 to 800,000 yuan would benefit most from the new regulations.

After two years of measures to cool the red-hot property market, he said, residential prices had fallen by as much as 25 per cent as developers cut prices to stimulate demand. Price discounting saw sales volumes jump by 30 per cent last month versus the same month last year, he added.

'The central government's austerity measures were primarily meant to curb speculation but not kill genuine demand,' he said, but added that the latest relaxation to pension-fund regulations would not be enough to spark a full recovery in the market as a whole.

'Sales of medium- to high-end homes remain sluggish,' he said.

30%

The year-on-year increase in home sales last month in Chongqing, after prices fell as much as 25 per cent

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