New lease of life

New rental housing for two million residents to be built in Chongqing

New lease of life

Chongqing is leading the way in affordable housing policies

Chongqing, China’s largest municipality with 32 million people, was recently named as one of the country’s top 10 happiest places to live. Two of the criteria mentioned for the city’s high happiness rating? Chongqing’s crackdown on local gangsters and its citizens’ love for revolutionary-era songs, says the Chongqing Daily.

Sounds a little unlikely. Then again, a revolutionary approach to housing might help too. As in other Chinese megacities, property prices in Chongqing have boomed. To redress complaints that real estate prices are increasingly beyond the reach of many locals, the mayor of Chongqing, Huang Qifan, announced recently that the city is going to build as many as 40 million square metres of public rental housing over the next three years, That would be enough to house more than two million people.

The public rental housing is designed for those who can’t afford to buy private homes, but who also fail to qualify to buy affordable housing. Owned by the government, public rentals are especially popular among low or middle-income families, including migrant workers and new graduates. Those with the lowest incomes can also apply for low-rent apartments, but also receive support from the government for some of the rental fees.

So how does the Chongqing government plan to finance the ambitious project? Huang told Caixin that the city will need up to Rmb190 billion ($28.5 billion) to build the the new housing stock. The local government plans to provide 30% of the investment. The rest of the money is to come from property developers and the state-owned banks.

But as we mentioned in last week’s issue, property developers and the state-owned banks may be reluctant to participate, with public rental housing taking a lot longer to provide a return on investment (see WiC99).

But Chongqing reckons it’s figured out a solution. Different to other cities, its public rental programme allows tenants to buy their own flats after five years, at a price based on market value. Although those purchase prices have not been announced, Huang has promised that they will be lower than prices for purely commercial housing.

Analysts say that gives the government a better chance of raising money for the current scheme. It also offers an exit strategy for the property developers.

Liu Lan, an official from the Beijing Yongwai Housing Management Office, believes the public will also stand to benefit. “You can keep living in the public rental homes if you don’t want to buy a place. But if the family finances improves and they want to buy a place, then they can buy their public rental apartment.”

Other industry observers say another way to fund the housing projects is through Real Estate Investment Trusts (REITs). According to the 21CN Business Herald, the State Council has already given permission to Tianjin and Shanghai to use REITs to fund affordable housing programmes. Chongqing could be next in line.

The idea is that REITs offer a relatively low-risk and liquid way into property investment, thanks to the steady revenue streams from rental income. The REITs also allow the local government to recover their investment sooner. A move, many say, that will make everyone happy.

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