The State Council's latest circular on housing requires local governments to make subsidized rental accommodation available to poor families across the country by the end of 2010.
It also tightens management of the low-cost housing system, a policy to provide low-cost accommodation that's subsidized by the government.
Housing should be about 60 sq m and cannot be resold within a five-year period. Local governments will have purchase priority.
"The most important thing about the circular, I believe, is that government subsidies can now really go to the poor families rather than to the rich," Pan Shiyi, chairman of SOHO China, told China Daily.
Affordable housing was once criticized as being too big and poorly supervised. Some apartments were as large as 200sqm. Some of the buyers drove to sales centers in BMWs and bought several apartments at once.
"Such measures (in the new circular) increase supply by reducing (housing) size and also curb demand through 'limited ownership'," said Wang Hongxin, a professor at Beijing Normal University. "But the circular won't be able to slow rising prices in the short term."
It usually takes around two years after a policy is released for land to be offered and construction finished. But the proportion of low-rent housing and affordable housing on the market determines its influence on property prices, Wang said.
Although the circular stipulates the annual land supply for low-rent housing, affordable housing, and medium- and small-sized housing should be no less than 70 percent, the exact proportion of the first two types is unclear.
"Therefore, we cannot be too optimistic about an increase in the supply of affordable housing," Wang said, adding that a lack of incentive for local governments to increase supply is also a factor.
Most industry experts expect indemnified housing will be limited to a comparatively low price range, but standard housing may increase further due to less government interference.
"Standard housing in suburban areas, however, may lose part of its market share due to a jump in the supply of affordable housing," said Pan Shiyi.
According to Ye Tan, chief commentator on the National Business Daily, the circular will set China's real estate sector back on track. "Low-income families will resort to low-rent housing, and low- to medium-income families will be able to get affordable housing while the remainder will buy standard housing."
Guangzhou, Beijing and Shanghai, which have seen the largest property price rises in recent years, are now actively working on the circular's detailed rules.
Guangzhou's mayor is planning to give a press briefing on the new circular, insiders said. And Beijing is also poring over the rules, based on two previous documents on low-rent and affordable housing.
Beijing's municipal government said early this year the city will construct 300,000 sqm of low-rent housing this year, 10 millionsqm of affordable housing and 10 millionsqm of fixed-price housing within three years. Beijing's Indemnificatory Housing Office has strengthened its screening process for indemnified homebuyers.
(China Daily September 4, 2007)