Premier Wen Jiabao's tough stance on the property market at the National People's Congress earlier this month signaled policies - such as limits on the number of homes a citizen can purchase - will not be eased in the short run.

Investments in the real estate sector as well as other related businesses including steel, cement, automotive and home appliances industries have been subdued. Construction that began on new homes registered a near-zero growth in the first two months of 2012, the slowest pace since 2009, figures from the National Bureau of Statistics showed.

The market has started to fret about a slowdown in investments in the property market, which is expected to ripple through the economy as a whole. Therefore, construction on government-backed affordable homes (known as baozhang fang in Chinese) is expected to fill the gap.

China built 4.3 million affordable homes accounting for 30% of the total housing supply in 2011, according to the Ministry of Housing and Urban-Rural Development. Currently 10 million affordable homes are being built, and this excludes seven million new units planned for this year.

Affordable homes are projected to represent one-third of the total residential space being built this year, well above the 20% average level set for the five years through 2015. In this year's budget, ¥402.4 billion were earmarked for public housing projects, up 15.2% from last year.

If China can finish building five million affordable homes in 2012 as it plans, overall residence supply would grow 20% to 30% to 10 million units even if supplies of non-affordable homes drop 15%. In terms of floor space, if an average affordable home covers 50 to 60 square meters, total affordable floor space will add up to 250 million to 300 million square meters, and overall residence supply would still grow 10% even if the area of non-affordable homes drops 15% in 2012.

These massive projects will keep China hungry for commodities.

$1 = ¥6.3

Source: http://www.ftchinese.com/story/001043830

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