Housing renovation pledge heartens China's construction steel producers

At the opening ceremony of the National People's Congress held in Beijing on March 5, Premier Li Qiang told delegates that the government this year would provide a total of Yuan 4.4 trillion ($608 billion) worth of special bonds to local governments – an increase of Yuan 500 billion on 2024 – with the requirement that part of the funds be used for purchasing land and commercial properties.

A few days later, Ni Hong, China's Minister of Housing and Urban-Rural Development, announced that as a follow-on from the special bonds to local governments, China will make over one million housing units available for so-called 'urban village' and housing renovation projects this year and further improve community infrastructure and services.

"As cities have expanded, many new urban villages have sprung up, often with suboptimal land use, safety concerns and inadequate public services," said Li Yujia, a researcher on residential policy. "Redeveloping these areas is crucial for achieving equitable urban development," China Daily quotes.

The urban village renovation strategy was adopted several years ago by China's central government aimed at transforming densely populated and informal settlements into modern residential and commercial areas, which typically involve demolishing outdated buildings and relocating residents, Mysteel Global noted.

Last November in a major policy shift, a notice issued jointly by the Housing and Urban-Rural Development Ministry and the Ministry of Finance said that the central government is expanding its support for urban village redevelopment to nearly 300 cities nationwide from the previous 35.

Although data for how many communities or households this might help is unavailable, an Urban-Rural Development Ministry news release in 2023 said that some 53,000 old urban residential communities would be renovated that year, noting that during January-June, renovation of 42,600 communities had commenced benefiting 7.42 million households.

Property renovation will not be the remedy for China's languishing real estate market or the 'magic bullet' that will cause consumption of construction steel to return to its earlier giddy heights, Mysteel Global notes, but it will help the steel industry indirectly.

"The transformation of urban villages will further promote the consumption of big-ticket items, including construction materials and home appliances, as well as the development of public service venues related to healthcare, express delivery and entertainment, among others," according to Wen Bin, chief economist at China Minsheng Bank.

For residents originally living in these urban areas earmarked for renovation, the central government is promoting "monetized resettlement", namely offering financial compensation instead of providing physical resettlement housing, Ni had told media on March 9.

This allows the residents to choose their future housing more flexibly and would help to absorb unsold commercial housing in the market, Mysteel Global noted.

In central China's Henan province, for example, the municipal government of Luoyang city announced on March 11 that it will adopt this "purchase instead of new construction" approach to resettle residents of the urban village renovation areas, and each district in the city will establish and publicly disclose their dedicated "housing resource pools".

Under this policy, residents can buy the commercial housing projects designated by the government on which construction has already started and for which pre-sale licenses have been obtained, or other properties that have ownership certificates and are free of ownership disputes, according to the announcement.

If all the one million housing units in the central government's renovation map proceed according to this resettlement model, it could help clear 20 million square meters of existing commercial housing inventories, economists estimate.

In addition to resettlement, local governments are also encouraged to acquire commercial houses for other uses, such as for employee dormitories and for 'talent' apartments – a type of residential housing provided by local governments or businesses to attract and retain skilled workers or professionals, Ni highlighted.

"The collective efforts have effectively boosted (real estate) market confidence, leading to positive changes in the market in the past few months," Ni said.

On the other hand, China is also making efforts to prompt the renovation of old residential areas on their original sites, including but not limited to adding elevators, increasing parking spaces and charging stations, and installing recreational facilities, according to Ni. All of which have a significant steel component, Mysteel Global notes.

To accelerate urban renewal, "all residential communities built before 2000 across the country will be incorporated into renovation plans, and local governments are also encouraged to implement tailored upgrades in the residential areas," he stressed.

"Since the central government's deployment of urban renewal in 2019, nearly 280,000 old urban residential communities have been renovated nationwide, benefiting 120 million residents," he maintained.

Written by Anthea Shi, shihui@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com