The central government will extend the low-rent housing system to cover medium- and low-income families nationwide this year.

All cities and counties will come under the system's aegis by the end of 2008.

That is the message from Minister of Construction Wang Guangtao. The public rental housing plan published a month ago is probably one of the most historic decisions the Chinese mainland has ever witnessed. This is the beginning of a housing revolution; as an analogy, just like cheap mobile phones started the telecom revolution.

Today, the mainland has two-thirds of population living in shabby and small houses. But in the next few decades, with gradual improvement in living standard, these people will be living in accommodations that are just dreams for them today.

The debut of this policy was welcomed by strong applause which stems from a critical shortage of affordable housing on the mainland. How bad is the shortage? As a rule of thumb, housing is considered affordable when it costs 30 percent or less of a household's income. But the pressure on housing affordability is mounting with monthly mortgage payment accounting for 50 percent of the middle-income group's total income on the mainland, according to the Chinese Academy of Social Science. A report released by the China Society for Urban Studies also found that the Chinese mainland has an alarming 1.56 million urban families with no access to adequate affordable housing, and many of them are living in overcrowded and dilapidated homes.

It looks like public rental housing is a social issue that can only be resolved by the government. And should developers ever care? In fact, demand from the low-income segment is very high and is neglected by most investors and developers presently. The reason is that Chinese mainland's property traders, at present, are not familiar with risk management. They run businesses based on others' experiences, not on their own marketing activities.

So, they tend to believe building homes for sale results in a higher profit than renting them out. The fact is homes for rent bring in a lower profit but supply a more stable income because long term leases do not heavily depend on market trends.

Since developers involved in the low-income housing project will only be allowed for 3 percent of margin, more developers will be pushed to build middle-to-high-income residential projects. So much keener competition is going to be faced among the growing number of developers on the mainland in the sector.

Increased competition will breed better quality of housing and reduction of prices. At the end of the day, it is the ordinary citizens who will benefit.

The author is the managing director of Vigers Asia Pacific.

(HK Edition 01/30/2008 page3)