Investing 900 Billion Yuan in Constructing Guaranteed Apartments within 3 Years
Events:
Qi Ji, the deputy minister of Ministry of Housing and Urban-Rural Development said on Nov. 12 that China would enlarge the construction in guarantee apartment and increase the investment to struggle to solve housing difficulties in low-income families within 3 years. 
The government will increase more than 2 million cheap-leased apartments, more than 4 million economical apartments and reconstruction in more than 2 million shanties in lumber, farming and mining areas with possible total investment of 900 billion Yuan with annual investment of 300 billion Yuan averagely. If including the upstream and downstream industries, the construction in guaranteed apartments every year will bring investment of almost 600 billion Yuan and provide more than 2 million employment opportunities.
Main Viewpoints:
Promote demand by guaranteed apartments
The government hoped to promote total demand by guaranteed apartments to upgrade trading volume in real estate market and run real estate enterprises.
Make up the investment gap
The real estate industry had accomplished actual investment amount of 2.5 trillion Yuan and 2.8 trillion Yuan in 2007 and 2008 with respective guaranteed housing investment of 99.38 billion Yuan and 149.4 billion Yuan. The guaranteed apartment investment in 2009 will be 304.9 billion Yuan, which will make up 200 billion Yuan. We estimate that commercial real estate market will decrease by 600 billion Yuan. Then the total real estate industry is optimistically estimated to decrease investment by 21%.
Strike on current commercial housing market (price)
The price of economical apartments will strike the commercial apartment market heavily. The salable area in ongoing real estate in the first-tier and second tier cities creates the historical high and vacancy rate in commercial apartments is also much larger than international alarm line and sold commercial apartments also have a lot of apartments with investment loss. If house price declines a lot, the assets relying on bank’s loan will damage safety of banking system.
Consequently, restarting the demand in real estate market including developing consumption in guaranteed apartments must be prudent. The primary task is to prevent the breakdown in the real estate market when price in real estate market declines generally. According to the average lease yield in first-tier cities and second tier cities of 3.3% at present, comparing with normal lease yield of 5%, we still have bubble of at least 30%. We forecast that the price will still decline by 10% to 20%.
We believe that the government also hopes that commercial real estate market can return rational: Wu Xiaoling, the deputy director of Financial Committee of NPC and vice president of PBOC expressed in the 4th China Real Estate and Financial Annual Conference on Nov. 2 that rational decline in apartment price is the base to start normal consumption. Further price decline of real estate developers is a rational choice and he also advised real estate developers to rationally deal with the effect of real estate adjustment and control. The real estate report of PBOC believes that the apartment price will decline by 10% and 15%.
We believe that in the prerequisite of declining anticipation in real estate price of apartment purchasers, real estate price will not cut. The central government does not have insufficient market rescue energy and not good effect. Therefore, central government promotes the demand by starting guaranteed apartments. If the government selects to rescue real estate market when house price declines by 10% to 20%, the effect will be better.  
Event Review:
In the “new real estate policy” announced on Oct. 22, the main discount object is apartment below 90 ㎡ that is purchased by individual for the first time. 
Market rumor on Oct. 22, the government is planning a “trillions of guarantee housing fund project”.
CBRC announced an urgent inform on Oct. 29 to strictly define that new housing loan discount policy only restricts first house purchase and re-declared that the loan policy of 2nd apartment does not change. (Restrict investment discount)
From Nov. 2 to Nov. 4, Li Keqiang, vice premier expressed to consider guarantee housing and medical service as the key to enlarge domestic demand. On Nov. 5, Beijing began the suiting construction mode in price limited apartments and increased income of real estate developers. (Before that, only Beijing, Guangzhou and Shanghai had experimentation in price limited apartments.)
On Nov. 6, Qi Ji, the deputy minister of Ministry of Housing and Urban-Rural Development expressed that China would invest more into guarantee apartment construction in 2009 and its target is to inject the group below 10 square meters in housing area per person into the guarantee scale within 3 years to solve their housing problem.
Qi Ji, the deputy minister of Ministry of Housing and Urban-Rural Development said when accepting the interview of reporters on Nov. 12 that China will enlarge the construction in guarantee apartment and increase the investment to struggle to solve housing difficulty in low-income families within 3 years.
In the prerequisite of adjusting real estate policy, Pan Shiyi, a real estate developer believed that guarantee apartment will change the ongoing apartment real estate market situation and he emphasized on that real estate developers should match the change in market situation and some companies that cannot match will be eliminated.  
 

event of real estate industry -20081118 shanghai s (48.71 KB)

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