The Government might not be able to fully control China real estate market in a flash, but can surely shape its future path.
After the annual meetings of the National People’s Congress and the Chinese People’s Political Consultative Conference, the Government officially announced a public housing program to be launched immediately and last until 2013. Its total value will be $200b and will support construction costs for lower income families (36m houses; 10m in 2011). Moreover, it will finance land purchases and cover people’s relocation costs.
This decision sets the reversal of a trend vis a vis the blossoming of luxury apartments, offices and commercial buildings that characterized the last few years of real estate development highlighting a gap with the average citizen’s ambitions and reality and setting the potential for future social tensions.
Foreign funds however keep flocking to China for real estate investment, as a confirmation that expectations are bright and optimism rules for buying assets of Hong Kong listed real estate companies or investing in real estate development projects in JV with Hong Kong developers. Foreign funds are replacing domestic ones penalized by Government‘s increasingly tight monetary policy.
Financing affordable housing is not necessarily a penalty against the old speculative investment mode, but an alternative to it. Financing affordable housing aims to provide families with something reachable, not just an impossible dream to achieve. China Government must however fully crack into local “construction lobbies” made of Local Administrations, real estate agents and developers, construction companies, building material suppliers, who are called to follow specific rules to take advantage of the low cost housing incoming boom.
Banks are encouraged to lend, but for that specific purpose. More lucrative speculative lending will not be allowed. Even when demand for credit exceeds supply, funding must have a social imprinting. Local banks are pampered and scrutinized, as a precious tool to use. For them it is an occasion to diversify and become more modern. Taking the risk to venture in new projects will be an opportunity, rather than staying on the safe side and minimize risk. In addition, they have no choice than complying when Beijing sends its message loud and clear.