* Affordable housing can't fully offset property slowdown
* Designed to appease public ire over housing prices
* Exact numbers hard to pin down
By Lucy Hornby and Langi Chiang
SHIJIAZHUANG, China, Feb 29 What do a
luxury Chinese apartment tower, a workers' dormitory, a
low-income housing block and an empty field have in common?
They all qualify as affordable housing projects under a
government scheme that policymakers hope will cool popular anger
over high housing prices, and that analysts are counting on to
keep China's property sector afloat.
The programme, which targets 36 million units of new housing
by 2015 at a cost of nearly $800 billion, has underpinned demand
for steel, cement and metals from the world's second-largest
economy as the larger real estate sector cools.
But the huge numbers don't add up to enough to ease concerns
that the Chinese economy is paying the price for the
government's crackdown on "speculative" real estate projects.
"It's an illusion to try to hang on to the notion that
social housing will have a massive pull on raw materials in
China. It does have a pull but not significant enough" to make
up for freezing commercial real estate spending, said Nicholas
Zhu, of ANZ Bank in Shanghai.
To gauge the status of the scheme, Reuters visited a dozen
building sites in the dusty city of Shijiazhuang south of
Beijing. A middle-income city of 10 million, including satellite
towns, Shijiazhuang is one of the few to have published a public
list of its affordable housing projects.
Tall towers rising from flat fields and former industrial
sites laid to rest the assumption of some that local governments
are simply faking affordable housing starts to meet central
government targets. In Shijiazhuang at least, the projects are
But a good portion of what's being built is already-planned
construction re-labelled as affordable housing. Those projects
aren't delivering the additional demand for concrete, steel,
glass or aluminum window frames that typically ensure that
construction gives an outsized boost to economic growth.
If the affordable housing programme cannot deliver
additional demand, the restrictions on commercial housing may
deliver a greater blow to the broader economy than Beijing
For two years, China has restricted bank lending to the real
estate sector and limited citizens' ability to buy multiple
homes, or homes in other cities, to curb speculation in high-end
housing. The campaign has finally started to impact prices.
Reuters visited projects ranging from tall towers of flats
measuring 60 square metres or less -- what most Chinese would
call affordable housing -- to factory and school dormitories. At
least two projects were part of luxury housing developments.
This seems to reflect what is happening across China.
Recent government announcements indicate that new
off-market, affordable housing units will increasingly be made
up of reclassified, non-commercial projects like dormitories
attached to schools, hospitals, government departments and
"There's a big difference between government definitions and
what a normal person would consider an 'affordable house'," said
GK Dragonomics research manager Rosealea Yao.
Reclassification jibes with a shift in official targets from
housing starts -- which critics charge are easily faked -- to
completions. Beijing targets 5 million completions this year, up
from the official count of 4.32 million completed last year.
Nationwide, affordable housing numbers are confusing.
Premier Wen Jiabao said last year that China would
build 36 million units by 2015, with 10 million to start
building in 2011 alone, as citizens seethed over red-hot
Beijing then retreated in the face of limited local budgets
and allegations that corrupt insiders get dibs on homes. It
shelved plans for subsidised apartments to sell to low-income
buyers in favour of modest apartments to rent to the poor.
The target for 2012 starts is now 7 million units.
Many analysts felt that the original target was so far from
reality that actual starts this year may exceed last year.
Official, yet widely disbelieved, statistics put affordable home
starts at 10.43 million in 2011.
Bank of America Merrill Lynch estimates that the number of
units actually under construction will rise to 7.3 million this
year from 3.7 million in 2011.
"Social housing starts have been overstated, but still the
increase in construction of off-market housing will more than
offset the fall in the market segment," said a recent report by
Beijing-based consultancy GK Dragonomics.
Not so, says ANZ's Zhu. His back-of-the-envelope
calculations show that government targets for affordable housing
would absorb only about 50 million tonnes of steel.
That's only one-sixth of China's construction steel output,
meaning that the real estate freeze can still create a dangerous
EXCUSE TO RELAX
Even if reclassified projects don't represent new demand per
se, they could allow the government to declare victory and relax
the controls strangling the commercial property sector.
Three sites visited by Reuters in Shijiazhuang turned out to
be newly completed dormitories. Two were at factories and the
third was a teachers' dorm for a rural high school.
Beijing is "taking a two-pronged approach of temporarily
repressing demand for commercial units and also building
lower-priced housing for the population that's been priced out
of the commercial market", said CLSA strategist Andy Rothman.
"Once they make progress on both fronts they can ease the
current restrictions on commercial home sales."
Some property developers are committing to build affordable
housing to get approval for more lucrative developments. That
lets local governments balance their budgets with land sales.
Some cities use "slum clearing" to move poorer residents out
of the valuable city centre and auction off the land to yet
another glitzy developer. As of 2010, about 90 percent of
Shanghai's "affordable housing" units qualified as "slum
clearing", versus 40 percent nationally, land use data showed.
At the luxury "European Landscape" compound in Jinzhou, near
Shijiazhuang, an affordable housing block was tucked into a
commercial development with decidedly upscale ambitions.
"The top sterling villa-community of Jinzhou! The ecological
slope-courtyard, the coastal holiday-villa!" a brochure boasted.
"European Landscape" and its sisters target demand for
investment properties at the high end of the market.
But urbanizing China needs new homes for young couples and
replacement for the cramped quarters endured by many, especially
migrant workers. GK Dragonomics estimates that 40 percent of
people in Chinese cities don't own their own home.
China needs to build 10 million units a year until 2030 to
meet a 70 million unit shortfall and upgrade shoddy housing.
"All we are waiting for is for the real estate developers to
recognize they have got to switch away from the speculative real
estate market to affordable housing - not just the ones the
government is requiring them to build, but affordable housing in
a wider sense for first-time buyers," said Rafael Halpin of
MEPS, a British steel consultancy.
"Once you see that transition, you have a second property
boom driven by real demand."