Government pronouncements of ambitious social housing targets have boosted the share prices of many companies that are likely to be involved in social housing projects, from real estate developers to construction contractors. But the market has failed to discriminate between the very different opportunities social housing represents for different segments.
Investors are rationally excited by what such a massive building project will do for profits at cement companies like Anhui Conch or China National Building Material. But developers can find more profitable business elsewhere. With low margins and other uncertainties plaguing the program, participation may not benefit their bottom line.
This should be obvious from the outspoken criticism of the program by some of China’s largest developers. One of the most vocal is Ren Zhiqiang, chairman of Huayuan Real Estate, who in a recent blog compared the social housing initiative to the Cultural Revolution. “Once again, China’s planned economy has made the mistake of totally disregarding the conditions of economic development and production capacity.”
Pan Shiyi, chairman of Soho China, one of Beijing’s largest developers, has also warned that pursuing massive targets could damage the industry. “The 36 million units of government-subsidized housing in the next few years will take half of the country’s real estate market, posing a great challenge to developers,” Pan wrote on his microblog.
However, the developers that tow the official line – like Vanke and Greentown China Holdings – could gain advantages in public and government relations. For example, Evergrande Real Estate has said it will build the housing as part of its corporate social responsibility program, rather than for profit.