According to the statements on the real estate sector developments at the Central Economic Work Conference, the emphasis was put on“accelerating the developments of the housing guarantee system”, and it was mentioned for the first time that “a housing system including both affordable housing and commercial housing will be established in accordance with the national conditions.” This statement implies that the dual track housing supply system, which combines affordable housing and commercial housing as many experts had long advocated, has gained approvals from the central government and recognitions of markets. In the future, this housing system will gradually take shape.
Many factors raise the difficulty in controlling the property market
According to the data provided by the National Bureau of Statistics, in November in 2010 the average selling price of houses in 70 Chinese big and medium-sized cities rose by 7.7% on year-on-year basis, the amount of increase contracting by 0.9 percentage point compared with October; however, this price kept a month to month growth of 0.3% in November, rising by 0.1 percentage point compared with October and the third consecutive monthly increase since September in 2010. As for the trading volume, in November commercial houses with a total space of 101.13 million square meters were sold, rising by 14.5% on a year-on-year basis. The absolute amount surged by 8.34 million square meters, a 9.0% increase from October; the commercial housing sales across China valued 528.6 billion yuan, rising by 18.6% on a year-on-year basis. The absolute amount rose by 21 billion yuan, an increase of 4.1%. A double surge in amount and price happened in many cities, including Beijing, Tianjin, Wuhan and Changsha.
Currently, the inflationary expectations began to rise after one or two months’ policy implementation and observation. The inflationary pressure also intensified and could not be eased in the short run. The role of property as investment tools was strengthened, which bolstered up the housing prices. Additionally, the favorable exchange and interest rate gains led a huge amount of foreign capital into the property market. Therefore, under these multiple factors, the control and management of property market has arrived at a critical period of game playing.
Due to the inflationary expectations, the curbing effect of management and control policies on demands has moderated. The surging price aroused property buyers’ worries about devaluation of purchasing powers and lack of investment channels, and strengthened their beliefs that “having one house in hands is better than none”. Also, the inflationary expectations rose with the growing pressure, and the spike of price made capital flow back to the property market after a short period of observation, which increased the difficulty in controlling the property market.
“Buckets Effect” of affordable housing becomes prominent; construction of public-rent houses will speed up.
For quite a long time, the imbalanced development of Chinese commercial housing market and the affordable housing market was also an important factor that contributed to the spike of housing prices. On the one hand, the long accumulated “historical debts” of affordable housing prompt demands to unleash in huge amount in the commercial housing market, which boosted the high housing price; on the other hand, the inadequacy of affordable housing accentuates the housing difficulties against the backdrop of high housing prices, which forms a vicious circle.
Compared with the commercial housing market, which grows rapidly with the urbanization, the development of affordable housing clearly lags behind, as the amount of houses is insufficient. In the middle of June of 2010, Mr. Liu Jiayi, Auditor-General of the National Audit Office of China, stated in his 2009 work report delivered to the Standing Committee of the National People’s Congress that as of the end of 2009, the 448 new low-rent housing projects and 10 squatter resettlement projects under the spot test had only completed 41% and 42% of the planned investment respectively. The “debts” of affordable housing channel huge housing demands into the commercial housing system, stress the relations between supply and demand, which become an important factor that contributes to the high housing price.
The Central Economic Work Conference this year pointed out that the role of governments should be consolidated, all social forces should be mobilized, the constructions of affordable housing should be furthered and the public-rent houses should be developed. A system of affordable housing and commercial housing should be formed in accordance with the national conditions. Also, an additional emphasis on affordable housing will not only efficiently satisfies part of demands in the commercial housing market, but also provides a good solution to the housing problems of those deserving people.
However, according to the housing programs in the “Twelfth Fiveyear Plan” in all regions, the affordable housing projects will take much more shares of the property market. The public-rent houses, which are used to solve housing problems for the “sandwich class”, will also become important in the construction program. During the“Twelfth Five-Year Plan”, the Beijing government plans to build and purchase 1 million affordable housing and grant rental compensations to 100 thousand households. The affordable housing will take up 60% of the whole housing supplies. In 2011, the percentage of publicrent houses will increase to more than 60% of the whole affordable housing program in Beijing. As for Shanghai, its initial plan during the “Twelfth Five-Year Plan” period is to build new houses with space of 130 million square meters. Among these houses, the affordable housing space will take up 50% and the number of houses will take about 60% of the total.
The Ministry of Housing and Urban-rural Development has recently pointed out that in 2011 the affordable housing program will cover 10 million houses, compared with the 5.8 million in the year 2011, the new incremental 4.2 million houses mainly belong to the public-rent houses.
Developers will take greater initiative in the affordable housing program
In those earlier days, Jia Kang, director of the Research Institute for Fiscal Science, Ministry of Finance, P.R.China and other experts claimed to establish “double track” housing supply system. The key lies in the division of responsibilities between government and market: the government should carry out well the territorial development and “top planning” for the property constructions, and provide low-rent houses for the lowincome class and the rental houses for“sandwich class”. The market should play its role in allocating common commercial housing and other properties. This means that more affordable housing houses should be built.
Actually, in recent years, as the double-track housing system of commercial housing and affordable housing becomes clearer, and the development of affordable housing was furthered and accelerated all across China, some real estate developers have followed the policy trend and take part into the affordable housing program on a voluntary basis. Many large real estate corporations, including Vanke, Poly, CSCEC, Chixia Development, green land, Merchants Property etc, have quickened their pace towards the affordable housing market and intended to grab more shares of the market.
We think that during the “Twelfth Five-Year Plan” period, it will be a big market trend that more and more real estate corporations will participate into the affordable housing developments and raise their corresponding investments. Reasons are as follows:
The first reason is that since last year, the control over property market has strengthened, which raised the policy risk for developing commercial housing programs. The contraction in real estate credit will surely happen next year. However, the affordable housing program has won a lot of policy support in capital, land and taxation. Compared with the commercial housing market, developers will suffer less risk in developing affordable housing and gain stable profits, protections on the capital return and credit support. It is said that currently, among all the housing space invested by Vanke, 5% of them belongs to affordable housing and the net profit rate amounts to 6%. The average net rate of all Vanke projects is about 10%.
Second, there is not much space left for developers in the commercial housing markets at the first-line and second-line cities. As the affordable housing program becomes more urgent and important, its huge market will become a new place for business competition and source of profits. Also, the affordable housing program will be carried out as business rather than public welfare projects. The affordable housing planned to be constructed this year will cover 1 million square meters. In Beijing, 1/3 of the houses developed by Vanke Beijing will become affordable housing in 2010.
From “letting real estate sector play a prominent role” emphasized in 2008 Central Economic Work Conference, to“provide more commercial housing supply” in 2009, to “accelerating affordable housing system development” this year, the policy trend has become quite clear. Under such background, real estate developers should adapt to the market change and make long-term plan about its position, to grab a share from the increasingly fierce competition in the affordable housing market.
(Author: from Xinhua News Agency)