China’s central bank adds $21 billion in cheap housing funds

The PBOC increased the quota of PSL funds by 500 billion yuan for the so-called “major projects,” which include building government-subsidized housing and renovating run-down inner city districts, according to an article published by the central bank last month. It injected a net 350 billion yuan in December, which was the largest since November 2022.

While the program will drive more credit and investment via construction projects, some analysts warned its impact may take time to manifest.

It’s unlikely urban renovation projects will “lead to an immediate boost on credit and economic fundamentals” because it can take a long time for such big projects to be launched, Sinolink Securities analyst Fan Xinjiang wrote in a report Friday.

Fan forecasts the 500 billion yuan PSL funds could eventually drive new credit by as much as 1.5 trillion yuan, as the projects will receive more financing. The interest rate on the PSL funds was lowered to 2.25% by the end of December from 2.4% in the previous quarter, according to PBOC data. That’s lower than the one-year policy rate of 2.5%.

Authorities have stepped up policy support for the real estate sector recently, with plans to reveal the first list of housing projects eligible for financing. Chinese cities including the southern metropolis Guangzhou also relaxed home purchase restrictions. But the market slump continues — new home sales from the 100 biggest real estate companies plunged 34.2% from a year earlier in January.

Chinese policy banks have also issued their first batch of loans to such projects in cities such as Guangzhou and Shijiazhuang, according to local media reports.