This article is from the Australian Property Journal archive
WHILST China’s real estate crisis, the debt woes of developers Country Garden and Evergrande have attracted headlines, Beijing’s move to increase the supply of affordable public rental homes to nearly half of new housing supply in top-tier cities, is expected to have a big impact on the property sector.
Under President Xi Jinping’s guidance of “housing is for living and not for speculation” and “common prosperity”, China is set to ramp up public housing supply to assist low-income households and young people and new university graduates.
There is also shared ownership housing (共有产权住房) model aimed at households in big cities with the selling price usually set at as low as 50% of market price.
ANZ’s China senior economist Betty Wang noted that Vice Premier He Lifeng recently stressed the importance of affordable public housing and said markets should stay alert to this move.
Wang said the supply of public rental housing, which could represent nearly half of new housing supply in top-tier cities such as Shenzhen, Beijing, Guangzhou, Hangzhou and Nanjing, will disrupt the market-oriented model of China’s real estate sector.
“While market have paid a lot of attention to China’s plans to stabilise its property sector in the near term, there are increasing signs that China has started to restructure the sector by promoting public housing to meet the country’s long-term goal of “common prosperity”.
“To an extent, the boom-and-bust of China’s property sector has resulted from the creation of commodity housing (商品房), which is equivalent to market-oriented private housing in other major markets. While it has brought prosperity to the economy and increased the asset value of households and local governments, it’s also been blamed for causing high living costs and is seen as a deviation from core tenets of China’s socialist principles,”
Wang pointed that China has tried for several years to establish a housing security system, but only in 2021 did it lay out a formal framework.
Since late 2021, major cities, including top-tier cities, have been announcing their 14th five-year plans (due by 2025) for local housing supply. A large share of affordable rental housing is in top-tier cities, with Tier 1 cities accounting for 26.5% of national supply by 2025 and Tier 2 for 57.4%.
And last month the State Council approved guidance for planning social housing construction and reiterated the importance of establishing a new development model for the property sector.
Wang said increasing public housing could offset the loss in property investment and construction due to the sectoral downturn.
“The Ministry of Housing and Urban-Rural Development announced it would provide 8.7 million units of affordable rental housing by 2025, in a bid to support 26 million new citizens and young people, with an estimated investment of CNY3trn.
“Using this set of numbers as a proxy, we estimate China’s annual social housing investment to be at about CNY750bn or 7–8% of property investment (excluding land acquisition) in the 14th Five Year period (2021–25),”
But restructuring a market as large as China’s will not be an easy task.
“The challenges associated with restructuring China’s huge housing market, with an annual supply of about 1bn square meters, are high, as is the pain felt by deleveraging developers and local governments losing revenue.
“Government-led social housing construction has not proven successful in the past few years, due to a lack of investment incentive and inefficient funding utilisation. Failure to attract household interest, due to poor project management and remote locations, are also blamed.
“China has a long way to go to transition the sector, but at least now looks the right time to do so.”
Meanwhile Wang said China appears to be moving towards Singapore’s model, where the government is responsible for providing public housing to legal residents and Singaporeans, after learning the lessons of Hong Kong’s so-called “85K” housing policy of 1997.
In Singapore, around 80% of the population live in public housing developed and managed by the government’s Housing and Development Board (HDB). At the end of last year, there were over 1.1 million HDB apartment units the city state, which was recently ranked the world’s most expensive city, according to Swiss bank Julius Baer Group.
Whereas Hong Kong’s model, which is market oriented and leaves housing supply to large developers, has been criticised for contributing to high living costs and widening the income gap. The 85K housing policy was introduced by Hong Kong’s then chief executive, Tung Chee-hwa, right after Britain’s handover to China. The plan was to enable 70% of local households to own their own home within ten years via a consistent supply of 85,000 units of private and public housing, annually. However, the plan caused a shock in the local economy, exacerbated by the Asian Financial Crisis and SARS pandemic, and the government eventually abandoned the plan. Hong Kong’s property sector then began its longest boom and has become the least affordable housing market in the world.
“Hong Kong’s example is a lesson for China, as the risks of an asset bubble and unaffordable living costs have “rung the bell” for Chinese policy makers and go against their stated aim of common prosperity. Supporting public housing and gradually downplaying the importance of market-oriented housing have become strong stances for Chinese policy makers,” Wang said.
