Janice R. Andrews
China’s latest push to improve housing quality, aimed at reviving the slumping property sector, could further stress cash-strapped developers, analysts say. The government’s new directives, including stricter construction standards, are designed to meet growing demand for upgraded homes but may increase costs for developers already grappling with a prolonged property downturn.
The term “quality homes” was introduced for the first time in this year’s government work report, delivered by Premier Li Qiang during the annual “two sessions” meetings in March. The report outlined plans to enhance the livability of mainland flats, with measures such as raising minimum ceiling heights and incorporating new technologies to address issues like sound insulation and odours.
Ni Hong, China’s housing minister, detailed some of these standards during a briefing on Sunday. He announced that the minimum ceiling height for residential properties would increase from 2.8 metres to 3 metres, emphasizing the need for homes to cater to diverse needs with varying sizes and price ranges. Affordable housing and the redevelopment of older homes were also highlighted as top priorities.
Higher Standards, Higher Costs
While the new guidelines aim to improve living conditions and boost sales, they could add financial pressure on developers. Lu Wenxi, an analyst at Centaline Property, noted that the increased ceiling height alone would require additional reinforced concrete, driving up construction costs. “An extra 20cm of reinforced concrete has to be factored in to meet the new height requirement, and that will definitely be reflected in the costs,” Lu said.
The push for higher-quality homes aligns with shifting demand in China’s property market. According to Fitch Ratings, a significant portion of future housing demand will come from urban families looking to upgrade their homes. Shi Lulu, director of Asia-Pacific corporate ratings at Fitch, explained that this trend would likely support higher average selling prices for new homes, as upgraded properties tend to command premium prices.
However, the focus on quality presents new challenges for developers, who must now prioritize aspects like location, design, construction, and decoration. “These changes won’t be implemented overnight,” Lu added. “When the market is strong, such requirements are often disregarded, but during downturns, various rules tend to emerge.”
A Slumping Property Sector
China’s property sector has been in decline since 2020, when authorities launched a nationwide campaign to reduce debt among developers and deflate a housing bubble. Despite efforts to stimulate the market, including mortgage rate cuts and expanded financing options, a meaningful recovery remains elusive. New home sales are down approximately 50% from 2019 levels, and buyer confidence remains low.
In February, home prices in first- to third-tier cities recorded year-on-year declines, though some cities like Shanghai and Shenzhen saw month-on-month improvements. The government’s latest measures aim to stabilize the sector by addressing the growing demand for upgraded housing.
Balancing Quality and Affordability
The new directives could help developers better align their offerings with market demand, according to Yan Yuejin, vice-president of the Shanghai-based E-House China Real Estate Research Institute. “Under the new directives, developers will be able to better tailor their offerings to market demand,” Yan said. “This aligns closely with official efforts to stabilize the property sector and curb its decline this year.”
However, the emphasis on quality may come at the expense of affordability, particularly for first-time buyers. While the government has pledged to prioritize affordable housing, the higher costs associated with meeting new standards could limit the availability of budget-friendly options.
Long-Term Implications
Analysts predict that demand for upgraded housing from existing urban families will reach 7.6 billion square metres between 2024 and 2040, accounting for 55% of total demand. This shift in demand structure underscores the need for developers to adapt to changing market dynamics.
While the new standards may improve living conditions and support higher selling prices, they also highlight the challenges facing China’s property sector. Developers must navigate rising costs and tighter margins while meeting the growing demand for quality homes.
As China continues to grapple with its property slump, the success of these measures will depend on their implementation and the ability of developers to balance quality with affordability. For now, the push for higher home quality represents both an opportunity and a challenge for the industry.
Conclusion
China’s focus on improving housing quality reflects a strategic shift to meet evolving market demands and stabilize the property sector. However, the higher standards could strain developers already facing financial difficulties. As the government seeks to balance quality and affordability, the long-term impact of these measures on the property market remains to be seen.
