Changsha subsidies plan may herald new era

PUBLISHED : Wednesday, 27 August, 2008, 12:00am
UPDATED : Wednesday, 27 August, 2008, 12:00am

Plans by the city government of Changsha to provide cash subsidies to help low-income earners buy their own homes have raised hopes in some quarters that the end is in sight for austerity measures aimed at cooling demand in the mainland property market.

But analysts see no early reversal to the countrywide measures and warn that the Changsha plan should be seen as a one-off.

Although the Changsha government subsidy was announced last month it has so far received little publicity and applications under the scheme only began on August 15.

Under the scheme, low-income families that are eligible to buy low-priced housing are entitled to a one-off subsidy of 80,000 yuan (HK$91,366) per household if they give up the option of buying cheap housing and instead elect to buy a property in a private housing development in the Kaifu district of the city.

Subsidies of 50,000 yuan will also be available under the scheme to low-income earners who already own property but live in poor conditions - judged by a per capita living space not bigger than 12 square metres, as well as shack-dwellers or those living in units smaller than 45 sq metres and those that face relocation because of major redevelopment projects.

Applications will close at the end of this month.

The government hopes that some low-income households will be lured into the private market, sparking a trend that will help it solve the shortage of low-priced housing within three years.

The low-priced housing programme provides subsidised public housing built by the government which is of lower quality than the private sector. Changsha and surrounding district governments have already earmarked 1.1 billion yuan for cash subsidies and the construction of low-priced housing in the district this year, according to a statement.

Citic Securities analyst Wang Derong said the subsidy scheme was a first for a local government.

'There are some prerequisites for the applicants. But I still see it as a first set of incentives by the local government to help the slowing property market. If the central government approves such a move, other city governments could follow suit,' he said.

However, Mr Wang said it was predictable that local governments would want to support their property markets since sales of homes contributed a vital share of their tax income.

Other analysts said it was wrong to assume the move by Changsha could herald a countrywide change.

In principle, the cash subsidies could stimulate deal volumes in the private property market, said Alan Chiang Sheung-lai, the head of residential property in China at DTZ.

However, since those entitled to the subsidies were from the low-income group, their purchases would be limited to units with lower price tags. 'Therefore the positive result on the market will be limited,' Mr Chiang said.

The average price of a private apartment in Changsha was about 3,500 yuan a square metre and units available were mainly of 90 to 100 sq metres, agents said. Low-priced units cost about 2,000 yuan per square metre.

This meant a 100 sq metre flat in the private sector would cost about 270,000 yuan after a subsidy - still 70,000 yuan higher than the price of a similar-sized low-priced housing unit.

Premier Wen Jiabao said in August last year that improving the living environment of low-income earners, such as by boosting the supply of low-priced housing, was among the top priorities of the central government, which had called on local governments to submit plans to realise that target.

'It's not easy for local governments to arrange the resources - in terms of both capital and land - to build a large amount of low-priced housing in such a short time,' said Mr Chiang.

'Also, it is time for the local governments to report their progress to Beijing. This has induced the government in Changsha to offer cash subsidies as an alternative measure to help low-income earners buy their own flats.'

By the end of last year, Changsha had invested 12.38 billion yuan constructing a total of 12.39 million sq metres of gross floor area of low-priced housing and had sold 149,400 units, according to official figures. A further 31,500 households were still waiting to buy low-priced homes.

'I do not think this will be a long-term measure and it won't be carried out all across the mainland,' said Lai Kwok-keung, a director and assistant general manager of Centaline (China).

Mr Lai said it was more likely a temporary measure in response to complaints over difficulties in buying cheap public housing, adding that 'demand from the enormous number of low-income earners on the mainland can't be solved by simply offering cash subsidies and low-priced housing is still a necessity'.

Even after an 80,000 yuan cash subsidy, many low-income earners would not be in a position to buy a unit in the private market, he said.

However, DTZ's Mr Chiang said it was possible that more local governments would follow Changsha's lead if it proved to be successful in boosting the home-ownership ratio among low-income earners and the central government did not rule against such schemes.