City boosting affordable homes market

An initiative to pilot a mechanism to acquire preowned homes that will guarantee the supply of government-subsidized rental housing will help Shanghai play the role of a market stabilizer, experts said.

The tone-setting annual Central Economic Work Conference, which concluded in December, had proposed the acquisition of existing commercial housing as a solution to ensure affordable housing, suggesting a new focus for this year's property market.

Shanghai announced the first batch of such projects at a signing ceremony on Feb 2, allowing local governments of Jing'an district, Xuhui district and Pudong New Area to pilot the initiative on certain conditions, local news portal Shanghai Observer reported.

Ding Zuyu, co-chairman of China Real Estate Information Corp, said Shanghai's innovative move is expected to deliver multiple benefits, with local home prices likely to bottom out in 2026 following the introduction of a series of measures.

"The most significant impact of the new measures is widely seen as restoring the city's home-replacement chain," said Ding.

According to Ding, as much as 70 percent of Shanghai's home transactions come from preowned housing, making a healthy secondary market crucial to the overall stability of the city's property market.

"In the meantime, local governments' entry into the purchase of secondhand housing is expected to help establish pricing benchmarks in the market, thereby curbing excess home price volatility driven by irrational sentiment," Ding added.

According to the plan, the first batch of government-subsidized housing will be purchased, with support from China Construction Bank, according to criteria such as suitable size, reasonable design, established communities and convenient transportation. Later, these flats will be accurately matched with the leasing needs of new residents, young people and university graduates among other talent, according to a Securities Times report.

"Although it will take time to fully assess the effects of the new policy, market sentiment is largely positive, and the move is widely expected to accelerate the home relocation procedure of families seeking better living conditions," said Lu Wenxi, an analyst at Centaline Shanghai.

According to Lu, the standards for purchasing preowned homes will in fact set a floor for local home prices.

In Pudong New Area for example, the local government is looking to acquire privately owned flats located within the Inner Ring Road area, built before 2000, under 70 square meters and priced below 4 million yuan ($576,340) each.

According to publicly available information, up to 76.71 percent of the 227,123 units of preowned homes that changed hands last year across Shanghai were priced below 4 million yuan, with those in Pudong New Area and Jing'an district standing at 75.32 percent and 66.24 percent, respectively.

"That means if the standard for acquiring secondhand homes under 4 million yuan in Pudong is promoted as a standard of the city, more than half of the existing flats will feel the impact," Ding said.

Shanghai's secondary home market warmed up in January, with 20,300 apartments changing hands across the city, representing a year-on-year increase of 26.7 percent.

"In fact, following consecutive home price adjustments, Shanghai's housing market had already reached an optimal point for home purchases by the end of last year, and the inventory of well-priced apartments is expected to be digested quickly ahead of the conventional peak season in March and April," Lu said.

"Shanghai's successful practice is likely to encourage cities with a significant shortage of government-subsidized homes to take similar action," said Lu.

"The significance of Shanghai's initiative lies in the fact that other major cities may follow suit, though likely at a smaller scale," said Li Yujia, a researcher on residential policy in Guangdong province.

"Chinese cities are currently facing similar issues as Shanghai, including slow market circulation, rising inventories in the secondary market, and irrational home price drops," Li said.

In fact, similar plans were previously introduced in cities including Nanjing of Jiangsu province, Hangzhou of Zhejiang province, and Zhengzhou of Henan province, but at a relatively smaller scale, Li added.

Zhang Dawei, chief analyst at Centaline Property Agency, said Shanghai's pilot program is not designed to "rescue" the home market or to drive up prices, but rather as a precise regulatory measure to seek multiple wins.

"In my opinion, the program's core objectives include giving new options to address the housing needs of new urban residents and young people, revitalizing aging, small, and poorly maintained homes in the city center, and creating a healthy circulation between the supply and demand of both new and existing homes," Zhang said.