Subsidized housing allocated for sale can be proportionally converted into commercial housing. Shenzhen has introduced new regulations to unlock the liquidity of existing projects.

The Shenzhen Housing and Construction Bureau recently issued the "Regulations on the Allocation of Affordable Housing in Urban Renewal Units Involving Demolition and Reconstruction in Shenzhen," which has attracted widespread attention.

According to the latest policy, affordable housing allocated in the planning of urban renewal units in Shenzhen should be planned and laid out in a coordinated manner with other types of housing. If the land for allocated affordable housing cannot be transferred, the affordable housing should be designed, constructed, and delivered simultaneously with the commercial housing on the same parcel of land.

Industry insiders have noted that Shenzhen's newly introduced regulations on affordable housing in urban renewal projects have two major highlights.

"Firstly, existing projects can reduce the proportion of affordable housing for sale and convert it into commercial housing. For projects with approved unit plans but not yet commenced, 40% of the floor area of affordable housing for sale can be adjusted to commercial housing. Secondly, for new projects or projects with unit plans that have not been approved, new rules for the allocation and transfer of affordable housing have been clarified, reducing the allocation in urban renewal projects and sending a clear signal to the market," said Li Yujia, Chief Researcher at the Guangdong Provincial Housing Policy Research Center.

It is understood that Shenzhen's latest policy applies to urban renewal projects that have been approved but not yet commenced before the implementation of the "Guiding Opinions of the State Council on Planning and Construction of Affordable Housing."

Sun Hongmei, Senior Analyst at the South China Branch of China Index Academy, pointed out that this policy is an important measure to implement the national "new housing reform" strategy and optimize the local housing supply structure. For urban renewal units involving demolition and reconstruction, development entities can choose one of the following two types of affordable housing conversion rules, provided they meet the corresponding requirements.

The first option is to convert 40% to commercial housing and transfer 60% without compensation. This means that development entities can adjust 40% of the originally planned affordable housing for sale (such as talent housing or shared ownership housing) to commercial housing for sale, and transfer the remaining 60% of the land area, calculated based on the average plot ratio, to the government without compensation for coordinated construction or allocation by the government.

The second option is to convert 50% to commercial housing and 50% to rental-type affordable housing. This involves converting 50% to commercial housing and adjusting the remaining 50% to public rental housing or affordable rental housing, further optimizing the structure of affordable housing.

"Shenzhen's newly introduced policy, through differentiated allocation ratios in three types of areas (20% in core areas, 18% in transition areas, and 15% in development areas) and a dynamic adjustment mechanism, combined with incentives such as exemption from land premium payments for land transfer and simplified approval processes, is conducive to enhancing developers' enthusiasm for participation," said Sun Hongmei.

Tang Lixia, Head of the Research Center at Leyejia, told reporters that the new regulations, on the one hand, increase the multi-channel supply of affordable housing and, on the other hand, reduce the pressure on development entities through measures such as proportional allocation, exemption from land premium payments, and the adjustment of affordable housing for sale to commercial housing.

"Ensuring profit margins for development entities is conducive to advancing the process of urban renewal and transformation, and establishing a more sustainable and healthy development model," said Tang Lixia.

Analysts stated that Shenzhen's decision to adjust the affordable housing component within existing projects, allowing eligible portions to be converted into commercial housing, is partly aimed at expediting the initiation of these existing projects.

In Li Yujia's view, for a long time, urban renewal has been a driving force behind Shenzhen's real estate market. This driving force manifests in two ways: on one hand, demand from urban renewal projects provides purchasing power to the market; on the other hand, urban renewal projects in core areas have become a significant source of new high-quality project supply, playing an active role in boosting the development prospects of districts, enhancing land value, and driving transactions in the high-end market.

"At the same time, it should be noted that due to the market downturn and the difficulty in maintaining financial balance, it has been challenging for existing projects to continue under the old allocation rules. This has not only weakened the momentum of the real estate market but also led to issues such as resettlement, non-performing assets, and triangular debts, affecting development investment and fixed asset investment. Therefore, one of the purposes of this policy adjustment is to expedite the initiation of existing projects, resolve historical issues such as resettlement, address the bottleneck of insufficient liquidity in the urban renewal sector, enhance the effectiveness of urban renewal as an accelerator, and activate the development momentum of the real estate market from both the supply and demand sides," Li Yujia added.

Sun Hongmei believes that Shenzhen's adjustment is not a relaxation of affordable housing construction but rather a balancing of market and affordable housing needs through flexible mechanisms, allowing some affordable housing to be converted into commercial housing, accelerating the implementation of stalled projects, and promoting the transformation of the housing market towards a "dual-track system of affordable housing and commercial housing." This marks a crucial step in Shenzhen's exploration of a new model for real estate development.