China takes big steps in affordable housing to bring down real estate fever

08:16, January 17, 2011      

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China is pinning hopes on its affordable housing programs to cool its red-hot property market in the latest round of campaigns against rising asset bubbles, after the government moved to crack down on market speculation during the past year.

Experts held that to increase supplies of affordable housing is the key solution to guide the market toward healthy development and help stabilize prices.

During a talk show hosted by China National Radio on Dec. 26, Chinese Premier Wen Jiabao said the government will press forward housing price control and increase the supply of affordable houses for low-income earners.

His words came after the government had announced a plan to build 10 million more low-income housing units this year.

China is working on a more healthy system that provides housing that meets different demands, after an array of policies, including tighter credit for commercial housing, failed to produce satisfactory results in 2010.

In 70 major Chinese cities, home prices rose 0.3 percent month on month and 7.7 percent year on year in November last year, which was the third consecutive month prices rose.

China started the construction of some 5.9 million units of affordable homes in 2010, of which 3.7 million were completed, official figures showed.

Qin Hong, a researcher with the Ministry of Housing and Urban-rural Development, said the number of affordable homes is still "far from enough", especially as more low-rent homes are needed for China's "sandwich class" families who either are disqualified for low-cost housing or cannot afford the sky-high prices of commercial housing.

"By attaching more importance to affordable homes and low-rent housing, it seems that the government is leading the market in the right direction," said Zhang Hanya, head of the Investment Association of China.

The latest report from the State Information Center(SIC) also noted that the construction of the 3 million affordable homes and 2.8 million units renovated in urban shantytowns is shaping the property market in a more reasonable manner.

"Only a dualistic structure that balances the development of both low-cost housing and commercial housing could ensure a stable and healthy market," said the report.

However, both policy makers and market observers have pointed out that the good intentions of the central government's regulations and construction plans could fade if local governments, which rely largely on land transfers for their revenues, fail to have them properly implemented.

Zhang also warned that local governments might not be as eager as the central administration about affordable housing projects.

"The central government is determined to speed up affordable housing construction, but it depends on local governments to carry out the plans," he said.

Local governments could be reluctant to implement them, as they are asked to both transfer the land at a low price and help finance these projects, which will definitely reduce their fiscal revenues, he explained.

Despite that the past year had seen "the most strict curbs on property market", land transactions had brought 2.7 trillion yuan in revenue to Chinese local governments last year, a 70.4 percent surge year on year.

In contrast, the Chinese central government provided 55.06 billion yuan to finance affordable housing construction in 2009, while local governments spent only 17.54 billion.

Xu Shaoshi, minister of land and resources, said earlier this month that the rapid increase in land transaction fees suggested that China's urban development is becoming more dependent on land sales, which triggered an uneven distribution of interests and social conflicts.

Experts suggested that the central government should take the implementation of affordable housing plans into consideration when assessing local governments' performance, and further improve the legal system to enhance supervision over enforcement of housing projects.

In response to the central government's urgings, China's local governments have begun to unveil plans on low-cost housing this year. In the country's economic hub of Shanghai, where home prices rose 37.24 percent year on year last November, the government announced plans to build 15 million square meters of affordable homes.

The city government also promised that of all new homes to be built this year, 5 percent must be affordable.

Source:Xinhua
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