By Liangping Gao and Marius Zaharia
BEIJING/HONG KONG (Reuters) – After Beijing ordered Chinese cities to buy newly-completed apartments and turn them into affordable housing, the first steps they took were to unveil plans to broaden eligibility for subsidies and fix other economic headaches in the process.
Chinese leaders issued the directive in May, aiming to alleviate a protracted property crisis, which has led to bloated inventories of unsold apartments that have crippled developers’ cash flows and weighed heavily on home prices, consumer confidence and economic activity.
The property downturn and sluggish consumer demand pulled growth below forecasts in the second quarter.
Some analysts saw authorities’ new approach on social housing as a rare consumer-oriented move in China that promises to transfer resources from local governments to households, which many have long called for as a means to boost domestic demand.
But an analysis of public statements from 20 Chinese cities shows that local officials are thinking bigger than that.
Most have distributed questionnaires to doctors, teachers and other groups beyond the usual low-income demographic targets to gauge demand for subsidised rents and apartment purchases. Some have called on migrant factory workers from rural areas or even scientific researchers to express interest.
Economists say these announcements show that the cities are seizing on the new housing policy in ways that try to address brain drain and net population outflows to mega-cities such as Shanghai or Shenzhen.
Easing labour shortages in factories and strengthening healthcare and education could help reduce some of economic and social pressures in smaller population centres by boosting activity and broadening the tax base.
“Smaller cities are more motivated to develop affordable housing,” Hwabao Trust economist Nie Wen said.
“Through affordable rents they can attract more migrant workers and reduce the net outflow of people. Affordable housing can also be sold to police, doctors, teachers, and help retain talent.”
Cities across China have only just started to release statements on their efforts to implement the May directive, with details of the targeted population groups emerging for the first time.
Ten of 20 statements reviewed by Reuters announced surveys of medical staff, teachers and other public sector employees. The eastern cities of Yantai and Longkou also said migrant workers are eligible to buy and rent affordable homes.
Hangzhou and Jinhua in the wealthier Zhejiang province want scientists. Tangshan in the Hebei province, near Beijing, offers housing to new citizens and people younger than 35.
Kunming in the southwest is targeting unspecified “talent groups that the city needs,” it said in a statement.
Duan, in the heavily indebted, poorer Guangxi region, offers discounted apartments to “families who don’t own housing, or whose per-capita home area is below 15 square metres.”
Analysts expect these surveys to return strong interest. But many would-be renters or buyers might change their minds if the apartments that authorities purchase for the scheme are in poor condition or in inconvenient locations.
“We don’t know yet what the quality of these apartments is,” said Ma Hong, senior analyst at GDDCE Research Institution.
‘SO POOR’
Beijing is facilitating 500 billion yuan ($69 billion) in funding for the scheme nationwide, and many analysts expect it to increase funding in the future.
Few cities have indicated the size of the planned subsidies.
Yantai and Longkou offer monthly rent discounts of 400 yuan for university graduates and 300 yuan for others. A further 50 yuan applies for each additional household member.
That amounts to subsidies of at least 20% in both cities, according to Yantai Daily and an online rental platform.
Hangzhou, home to tech giant Alibaba (NYSE:) Group, says renting a 50 square metre (538 square feet) apartment would only cost around 500 yuan per month.
Residents in the southwestern city of Leshan and the southern city of Yongzhou who have returned the official forms indicated flats of up to 110 sqm could be bought for about two-thirds of the market price.
In Leshan, this would reduce prices by around 100,000 yuan, allowing teacher Emma Xu, who earns 4,300 yuan monthly, to finally afford a home. Monthly mortgage payments would be just above 1,000 yuan, about the same as her current rent.
She’s looking forward to saving for rainy days, instead of for an apartment.
“I’m so poor,” said the 24-year-old. “I’m from the countryside, I live in a teachers’ dormitory, I’m paying back a student loan and I’m supporting my parents. I haven’t managed to save any money.”
CONSUMPTION GOALS
To facilitate household consumption in the longer term, the scheme would need to be scaled up and complemented by other reforms, analysts say.
Moody’s (NYSE:) Analytics economist Harry Murphy Cruise estimates existing affordable housing accounts for about 5% of the total housing stock in China.
Boosting that to 20%-30% would be of “massive benefit” for many Chinese and for household consumption at a macro level, but it would require between 3 and 4 trillion yuan in financing, he said.
“China desperately needs to re-balance its economy,” he said. “It needs household spending to really drive growth sustainably in the future.”
“Affordable housing isn’t a silver bullet to that, but it’s certainly a key pillar of a strategy.”
Welfare reforms, so that people like Xu worry less about their ageing parents, also would go a long way.
“Households may save less if they deem that they do not have to set aside too much money for expensive housing,” said Louise Loo, China economist at Oxford Economics.
“That said, the savings function in China depends also on other structural elements in place such as solid wage growth, and adequate expected pension payouts.”
($1 = 7.2685 renminbi)
