Cash drain may stifle plans for cheaper housing

PUBLISHED : Friday, 16 September, 2011, 12:00am
UPDATED : Friday, 16 September, 2011, 12:00am


China's ambitious plans for providing government-subsidised housing - including building 36 million homes between this year and 2015 - may be too costly to continue, a senior government adviser said.

Although the plan for 2011, which calls for construction to begin on 10 million homes before November, should be successful and produce its desired social effect, it remained to be seen if the scheme could continue as planned over the next four years, said Li Tie, director of the China Centre for Urban Development.

Subsidised housing is being used to provide homes for the urban poor and to stabilise, if not lower, prices of general urban housing.

For 2011 both targets were achievable, Li told the ongoing World Economic Forum meeting in Dalian , Liaoning province.

And Shi Jian, chairman of Shanghai-based developer SRE Group, said he believed housing prices in Beijing, Shanghai, Guangzhou and Shenzhen would drop by 10 to 15 per cent from 2010 peak levels.

However, Li said the land for subsidised housing was to be allocated by municipal governments and would not earn them much money because it could not be auctioned to the highest bidder, as in a sale for market-price housing.

And the local governments must still provide substantial funding for construction of the inexpensive flats and related public infrastructure, such as roads and schools.

In a recent JP Morgan research paper, the investment firm said that under subsidised housing strategy, the financial burden must be offset with funding from various sources.

Li concluded that if the massive building of subsidised housing were to continue until 2015, it would be a huge financial burden on most local governments if there were no major modifications.

A less-costly method, Li said, would be to allow the suburban rural collectives, or village communities, to build inexpensive rental houses on their land and lease them to newly arrived migrant workers.

Li said a proposal based on this line of thinking had already been submitted for review by the central government, but he did not know if it would be accepted and turned into a policy. His organisation is affiliated with the National Development and Reform Commission.

If there was no change to the existing subsidised-housing strategy, Li warned local governments would not have the resources to develop public infrastructure. And as a result, China's urbanisation as a whole would suffer a slowdown.

That would, in turn, delay migrant workers gaining the rights that other urban residents enjoyed.