China to focus on building affordable housing

Source : Business Times - 17 Mar 2009

When China excluded property from 10 sectors marked for support in a three-year stimulus plan, it signalled it was more concerned with affordable housing than with shoring up its sagging real estate market.

The snub may expose property developers to further pain, especially in the overheated high end of the market.

But any harm to the economy could be more than offset in the long term by a government commitment to build up the supply of affordable and low-income urban housing, which would spur consumption.

And after a dizzying series of policy U-turns over the past year, the property industry may be grateful for signs that the government has settled on a consistent long-term approach.

‘The government is apparently hoping for some reasonable easing in property prices, which are still too high and weighing on transactions as well as consumption,’ said Sun Jianping, a senior property analyst at Guotai Junan Securities here.

‘It’s likely to take a wait- and-see attitude about any new measures to boost the market in the near term, monitoring the effects of property friendly steps adopted late last year.’

Beijing ushered in a slew of steps to support the slowing property market in the fourth quarter of last year, such as cuts in business and transaction taxes, back-pedalling from policies taken just months earlier to cool what it feared was an overheated market developing into a dangerous bubble.

But in late February, it ignored property when it selected 10 industries to support in a stimulus package for its faltering economy, even though property investment accounted for nearly one-quarter of the nation’s total investment and 11 per cent of its GDP in 2007 and 2008.

‘The recent dip in property prices hasn’t really brought them far off their sky-high levels, and the government doesn’t seem to want to push them back up again right now,’ said Jin Dehuan, economist at the Shanghai Securities and Futures Institute.

‘The government will surely focus on the implementation of the long-delayed low-income housing scheme in the short term, although property will still be one of the top five industries subject to long-term support due to its weight in the economy.’

His view was echoed by official comments.

Qi Ji, Vice-Minister of Housing and Urban-Rural Development, told a news conference last week that property prices remained too high in some eastern cities compared with average incomes.

News of the apparent slight contrasted sharply with grim data from the property market.

Growth in China’s urban property prices slowed abruptly in early 2008, when the global financial crisis began to ripple over the economy, winding up a five-year bull run.

In December, prices fell 0.4 per cent, their first annual drop since the National Development and Reform Commission (NDRC), the country’s economic planner, began publishing the data in 2005. The pace accelerated to a record fall of 1.2 per cent in February.

The fall in property prices has fuelled investor worries about a rise in banks’ bad loans, as developers may default on projects that cannot generate the envisioned returns. Luxury spending fed by real estate speculation is also taking a hit.

What’s more, investment growth in the heavily weighted sector has slowed sharply, to just one per cent in the first two months of this year, down from 20.9 per cent in 2008.

That compares with overall urban fixed-asset investment growth of 26.5 per cent in January-February this year.

China’s property prices are still high compared with urban dwellers’ incomes, let alone earnings in poor rural areas.

In Shanghai, one of China’s richest cities, last year’s average per capita disposable income of 26,690 yuan (S$6,026) could not buy even two square metres of a typical 90-square-metre, two-bedroom apartment in the city centre or inner suburbs.

To ease the crunch, the country’s four trillion yuan, two-year economic stimulus plan, announced last November, includes 400 billion yuan to build affordable homes, while the Ministry of Housing and Urban- Rural Development has targeted 900 billion yuan in spending on low-income housing over the next three years.

Such spending will bolster upstream industries such as steel, cement and construction.

‘Property remains a pillar industry of China’s economy,’ NDRC vice-head Liu Tienan told reporters late last month, when asked why property was excluded from the 10 targeted industries.