China Social Housing: Lackluster Growth or Quantum Jump?

- What's the Issue: "The social housing program has attracted a lot of attention from market observers of late. Many market observers had doubts about the progress being made so far and the prospect of fulfilling the social housing construction plan by the end of this year. At the same time, a dearth of timely and reliable data on this front makes it very difficult to evaluate and track the progress along the way."
- Our view: "We revisit and reaffirm our calls that: 1) the austere measures regarding property speculation will not cause a hard landing in fixed-asset investment growth in general and real estate investment growth in particular; and 2) the social housing program is on track and will constitute an important cushion for any potential slowdown in private market-based residential property construction and thus help ensure a soft landing in fixedasset investment growth. Moreover, we highlight a scenario featuring a potential “quantum jump” in construction of social housing in the latter part of the year that could tilt the balance of risks to the upside for fixed-asset investment growth. In this context, a potentially strong performance from a social housing program in 2010 would make the authorities’ pledge to “solve the housing problem for 15.4 million of low-income households by end of 2012” a lot more credible."
- Where we differ: "We take a hard look at the structure of real estate construction activity in China. By presenting our analysis in a flow chart format, we help clarify the relative importance of market-based private residential property construction vs. non-market-based residential property construction and, in that context, highlight the critical role of the social housing program in shaping the potential outlook for investment growth. We also compile a comprehensive set of data to help bridge an important information gap for monitoring the progress of the social housing program."

Morgan Stanley China Economics 20100813

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