July 12, 2018 / 11:43 AM / 4 months ago

China to restrict subsidies for shantytown redevelopment projects

BEIJING (Reuters) - China’s housing ministry said on Thursday it will restrict subsidies to cities with hot property markets for new projects to tear down and redevelop shantytowns, as Beijing battles real estate bubbles and extends a multi-year crackdown on debt.

Banks that make loans to support national policy, including the China Development Bank (CDB), will not offer any this year to compensate home-dwellers for new shantytown rebuilding projects in cities where inventories are low and home prices high, the ministry said in a statement to Reuters.

China has lent billions of dollars for such urban redevelopment projects, which analysts say has created a significant demand in the property market as residents are encouraged to use cash compensation to purchase a new home when their existing home is demolished.

The policy helped boost home sales and prices in smaller cities that struggled for years with a glut of unsold homes. China’s home prices in May logged their fastest growth in nearly a year, defying persistent government curbs.

Cities with high inventories can continue to offer financial compensation for the rebuilding projects, the ministry said, while asking those with low inventories and high property prices to build new homes instead to make up to home-owners.

It did not specify the definitions of low inventories and high home prices.

The tightening of the financial compensation policy under the shantytown redevelopment projects came as Beijing expands moves to contain local government debt this year during a multi-year risk crackdown that’s started to weigh on economic activity.

Authorities will continue to monitor local governments’ financial position in shantytown redevelopment projects, and urge them to repay loans in a timely manner according to existing contracts, the ministry said.

Reuters reported last month that CDB had halted funding for new shantytown redevelopment projects, according to a source, and had transferred approval authority from local branches back to the bank’s headquarters due to concerns about risks associated with rising local government debt.

An index of property stocks listed on the Shanghai Stock Exchange .CSI300REI has dropped more than 5 percent this month.

China has a goal of revamping 5.8 million homes this year. At the end of June, it had reached 62.5 percent of the target.

Reporting by Stella Qiu, Yawen Chen and Elias Glenn; Editing by Jacqueline Wong and Richard Borsuk

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