China's largest residential real estate developers are struggling to adjust their product offerings to better compete due to the soaring supply of low-cost housing.

"We are mulling over a plan on how to differentiate our commercial products in areas where affordable housing will also be available," said Xiao Jing, head of the marketing department at Sino-Ocean Land, a Beijing-based, Hong Kong-listed property developer.

"Improving the product quality, and supporting equipment and services are the major measures we will take," Xiao added.

The central government plans to invest 900 billion yuan in low-income housing construction over the next three years, said Qi Ji, vice-minister of of housing and urban-rural development, last week.

The plan, which is included in China's 4-trillion yuan stimulus package, will help about 13 million low-income families move out of their average 10-sq-m living quarters into more spacious and modernized housing. Approximately 4 million housing units will be built and rented out to low-income families in urban areas.

The increased availability of low-income housing, however, has delivered a big shock to the market.

Statistics revealed that 8,267 units of residential housing were sold in Beijing during October, 4,800 of which were categorized as affordable, accounting for 58 percent of all transactions.

"In the long run, the low-cost housing plan helps to separate the demand. On one hand, low-income families will turn to affordable housing. On the other hand, property developers will reposition their products to better meet the needs of medium and high-end income customers," said Xiao.

A manager at a leading real estate firm, who declined to be named, said his firm is also studying closely product differentiation strategies since it is also involved in low-income housing construction.

An interesting phenomenon, he said, is that the price of low-income housing in Beijing is not so attractive now since the market experienced a correction or decline in prices.

To ease tightened cash flow, some developers have offered as much as a 40 percent discount on their products in suburban areas, resulting in prices similar to or lower than those of nearby low-cost housing.

Industry sources said the Beijing municipal government plans to buy some low-priced common residential buildings as part of the affordable housing plan.

(China Daily November 21, 2008)