The decision was made by the National Development and Reform Commission and the Ministry of Construction after several months' research.

"To meet the demand of middle and low-income families should be our policy priority," said Qin Hong, deputy director with the Policy Research Centre under the Ministry of Construction.

At present, the average living space of more than 50 per cent of urban residents is below the average per capita amount in 2002, 22 square meters.

To tackle the problem, since last October, Shanghai initiated a project to build apartments for relocated families and, by September this year, some 12,000 families will have moved into their new housing.

Their apartments are mostly located in outer areas but can still be reached by the subway system and public services, such as hospitals, schools and markets, and are relatively well developed.

Real estate developers participating in such projects are chosen through a bidding process and the completed housing is under government allocation, which helps cut costs.

According to the Shanghai municipal government, the quality and style of the cheaper apartments should also reflect Shanghai's position as an international metropolis.

The cost of the cheaper housing is fixed below 3,000 yuan (US$361) per square meter, which is more affordable to local families.

The city's original plan was to build about 1 million square meters of apartments for relocated families every year, hoping to accommodate 15,000 families annually.

However, this is not enough to cope with the number of families being relocated each year. The pace of the city's reconstruction program means that a minimum of 80,000 families need to be relocated annually.

By referring to international practice, the city of Shanghai is implementing a low-rent housing policy to help some of its poorest residents and, by the end of May, more than 4,000 households whose living space was less than 5 square meters per capita moved to a larger home thanks to the policy.

Beneficiaries this year will be the 7,000 households with the lowest income that have lived on allowances issued by the civil affairs administration for more than six consecutive months and that occupy a living area of less than 6 square meters per capita.

Apart from the investment decision, the central government has recently increased its efforts to curb the development of luxury departments and villas.

The measure was taken by the People's Bank of China, the country's central bank, to tighten the policy regarding mortgages.

Qin said all the government's efforts aimed to fully guarantee the basic right to housing in cities and maintain the healthy development of China's real estate sector.

Overall picture

The ministry said the "overall condition of China's real estate sector is healthy" even though several cities risk facing too much investment and excessively high housing prices.

In recent years, the real estate sector has become one of China's core industries, contributing 1.5 to 2 percentage points to the overall growth rate of the gross domestic product.

But a report from the National Bureau of Statistics said a glut of vacant housing has emerged in China.

Between January and April, the number of unlet and unsold properties grew by 9.6 per cent compared to the same period last year, it said. The increase was much higher than the 6.4 per cent growth rate witnessed during the same period last year.

China's real estate investment grew by 33.5 per cent year-on-year to 198 billion yuan (US$24.9 billion) during the first four months of this year.

But the ministry recently sought suggestions from six renowned economists, who insisted that real estate development should continue with its role in accelerating China's economic growth.

"However, house supply is not balanced as the common commercial apartments are not enough but the luxury departments and villas are oversupplied," said Qin.

According to Qin, house prices in cities are greatly beyond the buyers' purchasing power.

In Beijing, only about 10 per cent of the housing projects are priced below 4,000 yuan (US$481.9) per square meter. In Shanghai, only 18 per cent of the real estate projects are below 3,500 yuan (US$421.6) per square meter and in East China's Hangzhou, only 3.7 per cent of them are priced below 3,000 yuan (US$361) per square meter.

"You can see the purchasing potential is great but the prices are too high," said Qin.

.Alarming system

Despite the overall belief that China's real estate sector is developing in a healthy fashion, the Ministry of Construction has decided to set up a nationwide information and warning network to prevent overheating in the housing industry.

Yesterday, the warning system was put into operation in Hangzhou, capital of East China's Zhejiang Province, where most house prices have exceeded 3,000 yuan (US$361) per square meter.

Ministry official Wu Xuyan said: "The building of the warning network is one of the planned measures to oversee the real estate industry, which has gradually become market-oriented."

The national system will be based on data from various city-level systems and cover 35 major cities across the nation, including Hangzhou.

The national network is expected to begin operating by the end of this year, the ministry said.

(China Daily July 3, 2003)