Strained Chinese cities struggle to pay home buying subsidies

By Liangping Gao and Marius Zaharia

BEIJING/HONG KONG (Reuters) - Amy Wang was counting on a 100,000 yuan ($13,800) subsidy promised by authorities in the eastern Chinese city of Weifang to fit and furnish an apartment she bought two years ago. Still waiting for the money, she is yet to move in.

The 30-year-old now pays 6,000 yuan of her 8,000 monthly salary on the mortgage for the 1.1 million yuan apartment and another 1,800 yuan to rent another one, relying on her parents for other basic expenses.

"I feel under a lot of pressure," said Wang, who works in electronics manufacturing, and bought the bare shell of her apartment, without floors, interior walls or other fittings - which is common in China.

Weifang, with a population of more than 9 million and an economy larger than Croatia's, and dozens of other Chinese cities, have promised subsidies and other incentives to homebuyers to prop up the ailing property sector.

But the real estate downturn also affects the ability of cities to lease land to developers, a key revenue source.

This meant some local governments were unable to raise funds to pay the promised subsidies, frustrating buyers and casting doubts over future support measures.

All of that could delay the property market's recovery.

"There's a risk that households will start to perceive local governments as too cash-strapped to make good on their subsidy promises," said Christopher Beddor, deputy China research director at Gavekal Dragonomics.

"That will certainly make an impact on homebuying decisions."

Some 150 people from more than 50 Chinese cities, including Zibo in the east, central Shangqiu, and Zigong in the southwest, have used a section for public comments on the website of People's Daily, the official newspaper of the Communist Party, to complain about unpaid subsidies in the past six months.

Authorities in many of the cities have replied on the same platform, which requires users to register with their identification documents before posting.

Officials from Weifang, which had promised subsidies of 30,000 to 300,000 yuan, along with tax rebates and other incentives, wrote on several occasions, blaming COVID-19, the economic downturn and tax cuts for not making the payments.

"Unusual short-term conflicts between fiscal revenues and expenditures and enormous pressure on local financial security resulted in delays in the disbursement of housing subsidies," the finance department of Zhucheng, a municipality administered by Weifang, wrote in January.

In March, the human resources department of Weifang's High-tech Industrial Development Zone said their district has "partially disbursed" the subsidies and more payments were being processed.

Officials from Zigong and Zibo issued similarly worded responses as Zhucheng in April. Also this month, Shangqiu pleaded for "patience," saying the subsidies would be issued "when they are ready."

None of the city governments responded to Reuters' requests for comment.

The property market accounted for about a quarter of China's economic activity at its peak and budget revenues from land auctions dwarfed other sources of income in many cities before the pandemic.

Across China, land auction revenues in 2023 were about 20% below pre-pandemic levels in 2019, official data show. In Zibo, Shangqiu and Weifang, off-budget revenues - which include land sales - were down 30%-50% over the same period.

"What's underappreciated in China's property market downturn is that the real implication falls upon local governments," said Logan Wright, a partner at research provider Rhodium Group.

The sums and total number of people affected by unpaid subsidies remain unclear.

Shangqiu civil servant Alan Liu, 30, says that some homebuyers in the city have received their subsidies, but he is still waiting for the promised 30,000 yuan, having bought a flat in a "prime location" in June 2022.

"It's crucial for relevant departments to realise that this issue cannot be ignored for long and must be resolved, or it will affect the credibility of the government," said Liu.

($1 = 7.2464 Chinese yuan)

(Editing by Sam Holmes)