Will Affordable Housing Impact Commercial Real Estate? (AI Translation)

【周刊提前读】保障房会否冲击商品房？ 重心转向盘活存量

China's recent efforts to boost affordable housing and finance its construction have been significant, but they come at a challenging time for the real estate market, which is currently experiencing a high inventory of commercial housing and a decline in demand and investment over the past three years [para. 1][para. 2][para. 4]. In April and July 2023, China's Central Politburo emphasized increasing affordable housing, renovating urban villages, and developing dual-purpose public infrastructure as part of "Three Major Projects" aimed at stabilizing the economy and establishing a new development model for real estate [para. 2].

The State Council approved the "Guiding Opinions on the Planning and Construction of Affordable Housing" on August 25, 2023. This document mandates building affordable housing based on demand, particularly in major cities with a permanent urban population exceeding 3 million [para. 3]. It promotes a market-oriented approach to affordable housing distribution, ensuring that these homes remain affordable and are not converted into commercial housing. Over 100,000 units of distribution-based affordable housing have been proposed, with more than 30,000 units already breaking ground [para. 4].

Several cities have relaxed housing purchase restrictions, marking the largest scale of regulatory easing in the real estate market in seven years. However, despite policies to stimulate demand, the market remains sluggish, with high inventories and rising numbers of second-hand homes listed for sale [para. 4]. To tackle this, four key initiatives were discussed at the "National Video Conference on Ensuring Property Delivery" on May 17, 2024. These include promoting project construction and delivery, ensuring loan compliance for projects, local state-owned enterprises buying commercial housing for security housing, and managing undeveloped or unfinished land [para. 5].

Cities like Fuzhou have been proactive, with projects such as Binhai Shuanglong Xinyu breaking ground at the end of 2023 and planning significant scales of affordable housing construction [para. 99]. The Ministry of Housing and Urban-Rural Development does not impose uniform construction requirements but emphasizes building based on demand [para. 99]. Fuzhou focuses on working-class groups and those with housing difficulties for its affordable housing [para. 99].

Despite fears that large-scale "purchase and storage" might disrupt the commercial housing market, policies like these aim to balance commercial and affordable housing, ensuring basic needs while satisfying improvement needs [para. 12][para. 29]. However, only about 30% of the proposed affordable housing projects have commenced, highlighting a cautious approach due to concerns about further market disruption [para. 15].

To address the excessive supply of commercial properties, the People's Bank of China established a re-lending facility of 300 billion yuan for affordable housing, promoting a market-based bulk acquisition of existing homes [para. 20]. Nonetheless, local governments are cautious, planning to begin with one batch of projects, selling out before starting the next batch to avoid market oversupply [para. 15].

The long-term impact of these policies remains uncertain. They provide a supportive signal but also expose the challenges of revitalizing stock versus new construction. The integration of commercial housing inventory into affordable housing is a move aimed at addressing high inventory levels while meeting housing needs affordably [para. 20][para. 21].

In summary, China's real estate policies are undergoing significant changes, focusing on revitalizing existing housing stock through affordable housing initiatives to stabilize the market and provide for basic residential needs. The success of these measures rests on their careful implementation to avoid exacerbating market imbalances [para. 20][para. 29][para. 30].