Myriad Problems Plague China's Affordable Housing Push

Sub-standard materials, thin profit margins, cronyism, shortage of funds, bureaucratic delays, all so predictable. The commodity bulls seem to be betting big on this too.

China's $600 billion housing push faces roadblocks

Property companies contracted to do the building, including Vanke (000002.SZ), complain about thinner-than-expected profit margins and the building program is falling behind schedule.

The biggest developers, including Vanke, Poly Real Estate (600048.SS), and China Overseas Land (0688.HK), are finding that they are earning lower margins than they expected, typically 6-8 percent, but close to zero in some cases.

By contrast, commercial home development often provides over 30 percent margins.

The central planners want 10 million units this year. The local governments are supposed to cough up 90% of the cost at the same time their income is plummeting at the same time materials are still at record cost. It's a perfect storm of self-created problems.

And now they are thinking of selling bonds, or REITs to fund these projects. Seeking funding for projects guaranteed to make a loss. Good luck with that.

Any failure to hit those targets will amplify existing worries about a hard landing in China . . .

Ding.