The Chinese Housing Provident Fund

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Richard J. Buttimer, Anthony Y. X. Gu, Tyler T. Yang

1 / 30

7

1

2004

International Real Estate Review

Abstract


The Chinese government has embarked upon an effort to reduce the number of tenants living in publicly owned housing. This is a significant challenge for any government, but may be especially so for a country where private homeownership is a new option. Out of concern that many of its citizens could not afford to purchase their housing units, the Chinese government created the Housing Provident Fund. This program, which is similar to housing fund programs in other countries such as Thailand and Singapore, combines a 401(k)-like savings and retirement account with subsidized mortgage rates and price discounts to provide a mechanism through which an employee could save for, and eventually complete, a housing purchase. The housing provident fund (HPF) is very complex. It presents the participant with a number of options that can greatly affect their lifetime wealth. This paper presents a model of the HPF from the participating employee’s perspective, and then uses simulations to examine how the fund would affect the employee’s lifetime wealth under a variety of program parameters. From this information one can infer the optimal behavior for a rational program participant. It is also possible from the simulation results to infer which program parameters are the most likely to provide the best incentives to the employee to minimize the time that they stay in the program before they purchase their housing unit.
 

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