The central government's ambitious social housing program will entail huge investment in the property sector and is likely to help offset a potential slowdown in private residential investment amid policies to curb price rises.

The central government has recently announced plans to build 36 million units of economic (affordable) housing over the next five years, including 10 million units in 2011.

Total investment in economic housing construction will be 1.3 trillion yuan, reflecting a 60 percent year-on-year (YoY) increase in 2011. I believe these investments will largely offset the potential slowdown in normal residential property investment due to a decline in property sales. As a result, total property investment in the country could realize steady growth of 20 percent YoY in 2011.

Economic housing investment will increase 220 percent over the next five years covered by the 12th Five-Year Plan compared with the previous plan. According to my estimate, the central government may target completion of 10 million units each in 2011 and 2012, and a further 5-6 million units per year between 2013 and 2015. Economic housing supply will account for 20 percent of total residential property supply in 2015.

Economic housing construction will likely obtain sufficient funding support. Investment in subsidized houses, accounting for 60 percent of the 10 million units in 2011, will primarily be funded by buyers and the national housing reserve fund. Investment in low-rent apartments, accounting for 40 percent of the units in 2011, will be funded by the central government, local governments and other investors, including insurance companies. I expect that 60 percent of total scheduled investment in economic housing construction will be completed in 2011.

Residential property investment accounted for 70 percent of the country's total property investment in 2010. Under the base case scenario, normal residential investment is likely to realize 10 percent YoY growth in 2011, while commercial property investment is likely to achieve 20 percent YoY growth. This, together with 700 billion yuan in economic housing construction investment, will boost total real estate investment growth to 20 percent YoY in 2011.

Economic housing construction will benefit the construction materials and equipment sectors. Construction will likely accelerate in the third quarter of 2011, increasing demand for major construction materials, including cement, steel and glass. Construction equipment manufacturers will also benefit from increasing construction activities.

Historically, property sales have been positively correlated with sales growth in decoration materials and furniture. Therefore, I believe the acceleration in economic housing construction will boost sales growth in home appliances, decoration materials and furniture in the second half of 2011.

The author is an associate director and economist at CCB International Securities Ltd. The opinions expressed here are entirely his own.

(HK Edition 03/29/2011 page2)