Allotment-Type Affordable Housing Makes Its Debut: Shenzhen's Affordable Housing Model "Shifts Gears"

Shenzhen has made significant adjustments to its affordable housing model.

On the afternoon of May 28, the Shenzhen Municipal Housing and Construction Bureau issued a notice on its official website, soliciting public opinions on the "Shenzhen Management Measures for Allocation-Based Affordable Housing (Draft for Solicitation of Opinions)".

Allocation-based affordable housing is a type of housing within the housing security system. It refers to housing constructed in accordance with relevant policies and planning, with restrictions on unit size, selling price, usage and disposal rights, and is subject to closed management. It is allocated to eligible low-income wage-earning groups facing housing difficulties. Allocation-based affordable housing is sold as completed units.

The draft for solicitation of opinions consists of 5 chapters and 37 articles, clarifying the application conditions, allocation methods and procedures, closed management, supervision, and other aspects of allocation-based affordable housing.

In what aspects has Shenzhen's new measure changed compared to the previous ones?

In response, analysts from Leyejia introduced that Shenzhen currently has four types of affordable housing: talent housing, affordable housing, shared-ownership housing, and allocation-based affordable housing. Among them, the supply of talent housing, affordable housing, and shared-ownership housing has ceased. According to the latest management measures, Shenzhen will only supply allocation-based affordable housing in the future.

"After comparison, it can be found that the differences between the new measures and the previous ones include application conditions, whether full property rights can be obtained, resale restrictions, etc. In fact, last year, Shenzhen had already optimized relevant rules. For example, it was clarified that shared-ownership housing could be transferred within the closed system after five years, and formulas for making up the price difference were also determined for affordable housing and talent housing," said the aforementioned analyst.

Specifically, the application conditions for allocation-based affordable housing mainly include being a Shenzhen resident, having no self-owned housing in Shenzhen, regularly paying social insurance premiums for a cumulative period of five years (or three years for those who meet the approval conditions for talent introduction and household registration stipulated by the municipal government), among others.

Regarding pricing, it will be comprehensively determined based on the principles of covering the costs of allocated land, construction and installation, moderate and reasonable profits, and relevant taxes and fees, while appropriately considering factors such as economic and social development, the supply-demand relationship in the housing market, and the affordability of wage-earning groups. The selling price of allocation-based affordable housing will be calculated and proposed by professional institutions entrusted by the competent authorities and implemented after being reported to and approved by the Shenzhen Municipal Government.

In addition, the new measures clarify that allocation-based affordable housing is subject to strict closed management, and it is prohibited to convert allocation-based affordable housing into commercial housing in any way. If a homeowner needs to exit the allocation-based affordable housing after purchase, they may apply to the Shenzhen Municipal Housing Authority for closed transfer on the information platform after three years from the date of signing the sales contract, transferring the allocation-based affordable housing to eligible recipients. The Shenzhen Municipal Housing Authority may regulate transfer behavior by setting upper limits for reference prices.

If no one purchases a government-subsidized housing unit for more than one year, the housing authority may organize specialized government-subsidized housing institutions or other institutions to repurchase it based on actual circumstances. The repurchase price = original purchase price × (1 - annual depreciation coefficient × years of building use), with the annual depreciation coefficient set at 1%.

Industry insiders point out that one of the greatest advantages of government-subsidized housing for sale is its price, which is highly attractive to many new residents in Shenzhen.

"In 2023, Shenzhen's talent housing and affordable housing were highly sought after, primarily due to their price advantages. According to the latest regulations, the circulation restrictions on closed-loop trading of subsidized housing and the depreciation rules for secondary transfers not only stripped them of their financial attributes but also introduced certain losses in future transactions. However, there is some uncertainty regarding whether such housing can be effectively absorbed in the market. The decline in popularity of talent housing in 2024 is largely related to the clarification of listing rules after 10 years, which has weakened their cost-effectiveness," said Li Yujia, Chief Researcher at the Guangdong Provincial Housing Policy Research Center.

Regarding why Shenzhen is optimizing the affordable housing model, analysts point out that this is partly related to the large-scale construction of affordable housing in the region.

"Addressing the shortcomings in housing security is a correct direction. However, due to the rapid increase in affordable housing supply in the short term, inadequate consideration of the interaction between affordable housing and commercial housing, and insufficient consideration of the significant fluctuations in the commercial housing market from an upward to a downward trend, coupled with the fact that this construction task is mainly undertaken by a single enterprise, Anju Group (including district Anju), it has led to financial chain pressure at the enterprise level for Anju Group. It also faces pressure from market fluctuations on corporate operations, financial chain security, and the preservation and appreciation of state-owned assets," said Li Yujia.

He further stated that Shenzhen currently has approximately 20,000 existing affordable housing units that have been allocated but not successfully sold, along with 15,000 units that have not yet been allocated, totaling nearly 35,000 units, which exceeds the number of existing new commercial housing units. However, the inventory of commercial housing is borne by scattered developers, while Shenzhen's affordable housing is undertaken by a single enterprise, placing significant pressure on the latter. The introduction of the new regulations will alleviate the pressure on Anju Group.

In the view of He Ling, President of Marketing at Leyoujia, the introduction of government-subsidized housing for sale will effectively address the housing needs of new residents and young people, allowing them to settle in Shenzhen at a lower cost and providing support for talent retention and economic development in Shenzhen.

"The draft for public comments clarifies that Shenzhen's government-subsidized housing for sale will primarily consist of small one-bedroom and two-bedroom units available for immediate purchase, with a three-year closed-loop holding period. If one wishes to exit, they must wait for the three-year period to end before engaging in closed-loop trading, and the purchase and sale will not result in appreciation. These rules will ensure that government-subsidized housing truly meets rigid housing demands,"He Ling said.

Some industry insiders also believe that Shenzhen's easing of the application threshold for subsidized housing for allocation may have a certain impact on the commercial housing market.

"If the policy is relaxed, it may create competition for the commercial housing market with total prices ranging from 2.5 million to 4 million yuan. On one hand, with the same budget, homebuyers may prioritize affordable housing in core areas like Nanshan, thereby reducing demand for commercial housing in districts such as Longhua, Guangming, and Longgang. On the other hand, the original 'parallel tracks' of affordable housing and commercial housing will intersect, and some families with rigid housing demands may shift to the affordable housing market, further compressing the sales space for commercial housing in peripheral areas. Of course, the specific impact will depend on factors such as the scale of different regions," added Li Yujia.

From the performance of Shenzhen's market, according to the latest monitoring data from Leyejia, from May 1 to 27 this year, a total of 2,625 new residential units (including both existing and pre-sale units) were sold in Shenzhen, down 20% MoM. The number of second-hand residential units sold was 4,145, down 22% MoM but up 21% YoY.