Housing Vouchers Arrive in China’s First-Tier Cities

From their introduction to their disappearance and then their resurgence, housing vouchers, which were popular during the peak of shantytown redevelopment, have re-entered the public eye amid various new measures to boost the real estate market across China.

At first glance, the term “housing voucher” seems somewhat dated. Historical reports reveal that some regions started issuing housing vouchers to resettled residents for the purchase of new homes as early as 2005. The practice spread around 2015 due to the wave of monetization in shantytown transformation and then faded with the decline of such projects in 2018.

Now, as multiple hotspot cities represented by Guangzhou and Zhengzhou roll out this regulatory measure once again, it has stirred up significant discussion.

01 Guangzhou Becomes the First First-Tier City to Take Action

Amid active and steady progress in the transformation of urban villages in super-metropolitan cities, the “Special Planning for Urban Renewal in Guangzhou (2021-2035)” and the “Special Planning for the Transformation of Urban Villages in Guangzhou (2021-2035)” were recently reviewed and passed by the 14th meeting of the Regional Planning Professional Committee of the Fourth Guangzhou City Planning Commission.

Among the proposals, the most attention-grabbing is the suggestion to “optimize cost accounting and demolition standards, explore the policy mechanism for housing voucher resettlement, broaden the channels of financial support for the transformation of urban villages, and solve the difficulties in transforming urban villages to improve transformation efficiency.” Guangzhou thus becomes the first first-tier city to explicitly propose “exploring the policy mechanism for housing voucher resettlement.”

A review shows that many cities launched related systems in 2022, such as Zhengzhou, Nanjing, Xiamen, Guiyang, and Wuxi, all implementing housing voucher resettlement policies on a small scale and for a short period. “The policy is widely discussed largely because housing vouchers were previously more often mentioned in second and third-tier cities; now they’re being brought up by a first-tier city, which is seen as indicative of policy trends,” said Yan Yuejin, Research Director of the E-House China Research and Development Institute.

“The housing voucher policy in Guangzhou objectively reflects a push in the transformation and resettlement of urban villages. It shows that the transformation of hotspots in urban villages is accelerating and will better integrate with housing vouchers,” Yan Yuejin said.

Housing vouchers last caught significant attention in June 2022, when Zhengzhou became the first provincial capital city to reuse this old approach in the current round. Specifically, the shantytown transformation in the central district of Zhengzhou would implement housing voucher resettlement, offering an 8% reward to those who use housing vouchers to purchase commercial housing, and this would not count towards the family’s purchase limits.

So, what exactly does housing voucher resettlement imply? Zhang Hongwei, founder of Mirror Consulting, explains: it’s simply understood as giving a check, instead of a house (physical resettlement) or immediate monetary compensation (monetary resettlement), to a household being relocated due to a project. The check is roughly equal to or slightly higher than the monetary compensation amount, and it can be used in the market to pay for a house. Thus, the developer receives not cash but a housing voucher, which they then redeem with the relevant government department.

02 How Are Cities that Launched Housing Vouchers Doing

“Demolition makes one’s fortune; a house moved brings a Lamborghini…” Cheng Lei (pseudonym), who has worked in real estate sales for many years, can come up with several rhymes related to demolition. He finds it easy to understand the rollout of the housing voucher policy: “Previously, many people would leave the area or just bank the demolition compensation without doing anything with it, making it difficult to circulate the houses.”

Ms. Han in Zhejiang is currently facing the choice after the demolition of her homestead. “Our demolition plan offered two options: resettlement housing and housing vouchers. The resettlement homes are priced at just over two thousand yuan per square meter, averaging more than ninety square meters per person, which works out to over 300,000 yuan for one home; the housing vouchers are applicable to several projects in specified areas, can be directly used for payment, and there are discounts for early decisions, such as an additional 20% deduction if purchasing within three months.”

“I always feel that resettlement houses won’t sell well later on, and the environment and property management are not as good as commercial housing. Also, our housing vouchers can be transferred and sold, and they can also be converted to cash later, so I’m currently more inclined to opt for housing vouchers,” Ms. Han said.

As Ms. Han mentioned, in cities where housing voucher transactions are not prohibited, a market for buying and selling vouchers has emerged, with Mr. Miao, who has spare vouchers, looking into the details.

“For example, according to the rules, a 1 million yuan housing voucher can buy a house worth 1.25 million yuan. Those who issue housing vouchers usually offer some discount, and if you get a discount of 15-20%, it works out that 800,000 yuan can buy a house worth 1.25 million yuan. Even if the layout of the house isn’t great, I think it’s quite suitable for homebuyers who are a bit tight on funds,” Mr. Miao said.

How much discount can be obtained on the sale of housing vouchers? According to Mr. Miao, small vouchers are commonly sold at about 9-9.2%, and larger ones can reach 8-8.5%, although this varies with the market. “I was initially planning to sell at 88% because many agents are also involved in selling housing vouchers, and they drive the price very low. But recently it seems the price has gone up again because new policies in other areas of the city have stipulated that housing vouchers cannot be resold, but ours still can, so suddenly it’s popular, so I plan to wait and see.”

“I think the best way right now is a combination of both approaches. I’ve already used most of my housing vouchers to swap for commercial housing, and the vouchers I want to sell are just a small portion left over. It doesn’t matter if they don’t sell. I also have friends who chose to settle on a better resettlement house early and converted the rest into housing vouchers, which seems quite good too,” Mr. Miao said.

The city where Cheng Lei is located offers one more choice: cash, resettlement housing, or housing vouchers, with the combined method being the most popular. “Currently, many people choose a combination of cash plus housing vouchers. Direct selection of resettlement housing is relatively rare. Because we have too many resettlement houses here and high inventory, everyone is worried they won’t be able to sell them second-hand,” Cheng Lei said.

03 Destocking Remains the Policy Focus

Compared to traditional direct monetary compensation, what advantages do housing voucher resettlements offer? The China Index Academy points out two key points: one is targeted destocking, as the people who accept housing vouchers have a limited range of residences they can buy, preventing capital outflow; the second is stretching out payment schedules, reducing the amount of centralized payment, easing the financial expenditure pressure on local governments, and increasing the financial allocation space for local governments.

“On one hand, it reduces the huge initial investment for the transformation of urban villages, and on the other hand, it also facilitates the destocking of commercial housing,” concluded Li Yujia, Chief Researcher at the Housing Policy Research Center of the Guangdong Urban Planning Institute. He believes that the group suitable for choosing housing voucher resettlement includes those with multiple legal rental houses, those who have already relocated from the village to other places, and those who wish their children to inherit commercial housing. Of course, policies also encourage, for example, exemption from purchase restrictions for housing voucher settlements, reduction of deed taxes, and discounting housing prices based on market prices.

“Housing voucher resettlement may solve some resettlement needs, but it also depends on the final policy design, support strength, and the future market trends and expectations of commercial housing in various regions,” Li Yujia also stated. Among first-tier cities, it is highly likely that only Shenzhen will follow this policy, as Beijing and Shanghai do not have significant volumes of urban village transformation.

“It does not rule out that other first-tier cities will follow suit, but the strength of implementation and the coverage of the project may vary from place to place. The likelihood of housing voucher policies being widely applied in first-tier cities is also small, because these places have sufficient market demand, and as long as regular measures such as relaxed purchase restrictions and down payments are in place, market demand will become active,” said Zhang Hongwei.