Qingdao City Affordable Housing Project Financing Model System

Affordable housing project is one of the major livelihood projects in China. The large-scale construction of affordable house is conducive to resolving the social conflicts, and to promoting the harmony and stability of society. At the same time, it can also divert the demand for commodity housing market, and play a "sedative" role in the market. The start time of the affordable housing projects in China, however, is not long, and the coverage of housing security is not large enough. To some extent, the source of funds is an important factor in successful promotion of affordable housing project. In the case of Qingdao, Qingdao Municipal Party Committee and Government attach great importance to the construction of affordable housing projects. The urban levels of government have invested about2.4billion of housing security funds at the end of2011. The urban levels of finance have invested more than10billion of housing security funds through direct investment or the income mode of land alienation. The traditional mode of financing, however, has been unable to meet the future development needs. It needs to summarize and study internal and international experience to broaden the financing channels for affordable housing projects, and build the sustainable system of affordable housing development in Qingdao.The existing affordable housing in Qingdao includes urban low-rent housing, economically affordable housing, public rental housing, and "the two reformed" housing (the reconstruction of the old houses and the reconstruction of old village houses). In the development course of construction of affordable housing projects in Qingdao, it can be divided into three stages:the initial stage, the stage of preliminary effects, and the stage of all-round benefit. Currently Qingdao affordable housing projects have identified short, medium and long-term objectives, expecting that in2015,2020, and2030, it will respectively solve290,500,390,500, and590,500affordable housing needs. At the same time, Qingdao have identified that the development ideas of affordable housing projects are focusing on the development of public rental housing, building the economically affordable houses as required, increasing the supply of the commodity housing of limited price, continuing to implement the reconstruction of old residence, and advancing the pace of the relocation and reconstruction of the old towns and villages in city. According to the previous aggregate investment of affordable housing in Qingdao, combining with the construction goals of the affordable housing in Qingdao from the national and provincial governments, it is estimated in the future5years, the demand of affordable housing projects in Qingdao is almost between RMB71.1and84.76billion. From the existing channel of fund supply, the total amount of fund supply is RMB67.735billion, of which, the financial allocation and internal funds are a total of RMB17.935billion, the usable bank loans are RMB49.8billion, the minimum financing gap is RMB3.365billion, and the maximum is RMB17.025billion. Therefore, according to the current channels of fund supply, it cannot satisfy the fund demand of the housing projects in Qingdao in the future5years. It needs to broaden the channels of fund supply, and solve the problem of the housing construction planning.Affordable housing projects are the common problems faced by all the countries. The domestic and foreign scholars have much discussion in the theoretical and practical aspects of the problem of the construction of affordable housing projects. From the foreign situation, there are mainly four ways that are government financial allocation, the bonds issued by local governments, real estate investment trusts (REITS), and the special funds guaranteed by government. From the domestic situation, apart from the traditional government financial allocation, bank loans and other financing modes, some cities attempt to introduce insurance funds, pension funds, provident fund loans and other ways to solve the problem of the source of the affordable housing funds. At present, Qingdao has set up the investment and financing platforms of affordable housing projects with the two government backgrounds of the investment center of public housing construction and construction investment center of Qingdao City. They are respectively responsible for the city’s construction of affordable housing and the construction of the two reformed housings, and respectively design different financing modes for the four types of affordable housing. However, from the profitability analysis, the revenue levels of different affordable housings are imbalanced, leading to some difficulties of financing, i.e. the policy support system is not yet complete, risk mitigation measures are inadequate, it is in need of incentive system for the developers to involve in the construction of affordable housing, the pressure of financial expenditure and the funding gap of government are large, the payment protection mechanisms remain weak and other problems. These problems to some extent exert influences on the funds supply of affordable housing in the next five years, and therefore we need to further broaden the financing channels of affordable housing.According to the domestic and foreign practice, combining with the actual situation in Qingdao, real estate investment trusts (REITs) is a better financing. Through the existing holding properties resources which can generate stable rental income, the local government establishes REITs, issues the trust and investment units to raise funds, and raises funds for the construction of affordable housing. After the newly completed affordable housing can generate stable rental income and government subsidies, the government can re-inject the original REITs or issue new REITs to raise funds in order to achieve a virtuous circle of the affordable housing construction funds. However, in order to make sure the successful operation of REITs financing mode, the roles of government need to be further transformed from the direct investors and managers to be guides, cooperators and supervisors of the affordable housing financing. It is to gradually form the cooperation situation built by both the government and enterprises, develop a reasonable risk-sharing mechanism and exit mechanism, enhance the return on investment to stimulate the enthusiasm of developers to invest, guide the banking institutions to support the construction of affordable housing, innovate the financial products to meet the fund requirements of affordable housing, and encourage banks to participate in the financing of affordable housing projects.