(Yicai) May 20 -- China has unveiled a series of new measures to support its troubled real estate sector, including setting up a CNY300 billion (USD41.5 billion) refinancing fund to back the purchase of unsold residential properties.

The People's Bank of China formed the affordable housing refinancing fund to help local state-owned companies buy reasonably priced finished but unsold apartments and then sell them on or rent them out, it said on May 17. The move will likely drive CNY500 billion in bank loans.

The central bank also announced various new real estate market policies, including reducing downpayments to 15 percent, canceling the rate floor on mortgages, and paring the housing provident fund rate by 0.25 percentage point.

The measures will play a positive role in the market, likely boosting demand for apartments, Chen Li, a property sector analyst at Huafu Securities, told Yicai. The refinancing fund will effectively digest inventory while also adding to the supply of affordable housing, Chen added.

According to analysts, given that the fund will require a huge amount of money, it will be necessary to expand funding sources in the future, along with an urgent need to improve the ability to operate and manage government housing.

Local government buying of unsold homes can ease the downward pressure on the market, but the source of funding is an issue that needs to be considered. The funds will very likely come from continuous government lending, according to TF Securities.

Issuing special government bonds could be one option due to the very low yield, Zhang Hongwei, founder of consultancy Jiangjian, said to Yicai.

Local governments have limited headroom for bond issuance, according to Sinolink Securities, so the funding for this round of destocking is expected to come from pledged supplementary lending, special-purpose bonds, and special treasury bonds.

The refinancing fund will provide an additional funding source, according to China Real Estate Information Corporation, but the this model is unlikely to be widely taken up and the project may cost more than CNY5 trillion (USD691.5 billion) nationwide.

Instead, the model will only be used in cities and areas with high housing inventories and a larger affordable housing gap, CRIC said, adding that another major challenge posed by local governments buying unsold homes is managing them after they have been bought.

The return on property investment in most Chinese cities is only 2 percent, CRIC pointed out. Even with low-cost funding, balancing income and expenditure is difficult when considering operating costs. Without resolving this issue, large-scale buying will not substantially mitigate the risks, it noted.

Most local government financing vehicles have no experience with operating and managing rental houses and lack the necessary ability, Zhang pointed out. When picking projects, state-owned enterprises should choose those with good locations, convenient transport, and nearby industrial infrastructure to minimise any operational issues, he said.

Editor: Martin Kadiev