Following Beijing’s directives for Chinese towns to purchase recently constructed flats and convert them into affordable housing, the initial actions were to provide proposals to expand the eligibility for subsidies and address other financial difficulties.

In an effort to ease a protracted housing crisis that has resulted in ballooning stocks of unsold flats, crippling developers’ cash flows and placing a significant burden on house prices, consumer confidence, and economic activity, Chinese officials issued the decree in May.

Growth in the second quarter was lower than anticipated due to the decline in real estate and weak consumer demand.

The authorities’ new approach to social housing, which many have long asked for as a way to increase domestic demand, has been viewed by some observers as a rare consumer-oriented move in China. It pledges to shift resources from local governments to families.

However, a review of remarks made in public by 20 Chinese towns reveals that local leaders are considering more expansive ideas.

Most have surveyed physicians, educators, and other non-low-income demographic groups in addition to the traditional targets to determine demand for subsidised rent and flat purchases. Some have even called on scientists to demonstrate interest, or migrant industry workers from rural areas.

These statements, according to economists, demonstrate how the cities are attempting to counteract brain drain and net population losses to megacities like Shanghai and Shenzhen by leveraging the new housing policy.

China’s economy expanded far more slowly in the second quarter than was anticipated. By increasing activity and widening the tax base, easing workforce shortages in manufacturing and improving healthcare and education might help ease some of the economic and social strains in smaller population centres.

Hwabao Trust economist Nie Wen stated, “Smaller cities are more motivated to develop affordable housing.”

“They can draw in more migrant labourers and lower the net outflow of population by offering inexpensive rentals. Teachers, physicians, and cops may all benefit from affordable housing, which will also help them retain talent.”

The May order is only now being implemented by a few cities around China, and the specific population categories that are being targeted are just now becoming clear in the statements that have been released.

Ten of the twenty comments that Reuters examined revealed polls of teachers, doctors, and other public servants. Affordable housing may be purchased and rented by migrant workers, according to the eastern cities of Yantai and Longkou.

Scientists are sought after by Jinhua and Hangzhou in the affluent Zhejiang province. New citizens and those under 35 are able to get accommodation in Tangshan, located in the Hebei province close to Beijing.

According to a statement, Kunming in the southwest is focusing on “talent groups that the city needs,” although it did not specify which ones.

In the impoverished Guangxi province, Duan, which is deeply indebted, provides cheap flats to “families who don’t own housing, or whose per-capita home area is below 15 square metres.”

Analysts anticipate a high level of interest in these polls. But if the flats that the government buy for the project are dilapidated or in awkward locations, a lot of prospective tenants or purchasers would reconsider.

The quality of these residences is still unknown, according to Ma Hong, a senior analyst at GDDCE Research Institution.

For the national programme, Beijing is providing funds of 500 billion yuan ($69 billion), and many observers anticipate that funding will rise in the future.

Not many localities have disclosed the extent of the intended subsidies.

For those who have graduated from university, Yantai and Longkou give a monthly rent reduction of 400 yuan; for others, it is 300 yuan. For every extra household member, an additional 50 yuan is charged.

This translates into at least 20% in subsidies in both locations, as reported by Yantai Daily and an online rental marketplace.

Alibaba Group (9988.HK), a tech powerhouse, is based in Hangzhou. According to a new tab opened by the city, renting a 50 square metre (538 square foot) flat would only set you back about 500 yuan a month.

Flats up to 110 square metres may be purchased for almost two-thirds of the market price, according to residents in the southern city of Yongzhou and the southwest city of Leshan who submitted the official forms.

This would lower costs by almost 100,000 yuan in Leshan, making a house finally affordable for teacher Emma Xu, whose monthly salary is 4,300 yuan. Her current rent would be almost equal to the monthly mortgage payment of slightly over 1,000 yuan.

Rather of saving for a flat, she is excited to put money down for rainy days.

“I’m so poor,” the 24-year-old remarked. “I’m from the country, I live in a hostel for teachers, I support my parents and I’m paying back a college debt. I haven’t been able to save any savings.

Analysts state that in order to support household spending in the long run, the programme would need to be expanded and strengthened by other changes.

According to economist Harry Murphy Cruise of Moody’s Analytics, China’s supply of affordable housing now makes up around 5% of the country’s overall housing stock.

Raising it to 20%–30% would, in his words, “massively benefit” many Chinese and family spending overall, but finance for it would come to between 3 and 4 trillion yuan.

“China desperately needs to re-balance its economy,” he stated. “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 changes will also be very beneficial in easing the concerns of individuals like Xu over their elderly parents.

“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.”

(Adapted from ChannelNewsAsia.com)

Categories: Economy & Finance, Strategy, Uncategorized