China's taste for high-end property forces a rethink on house-builders.
When the Millionaire Fair, an exhibition of luxurious products, came to Shanghai last month, one local property developer put the city’s most expensive house up for sale – a $31.2m (€24.7m, ₤16.9m) mansion by a lake with a private island in the south-west suburbs.
In the construction boom that has been electrifying many of China’s cities, developers have given priority to luxury housing over the rest. Of the Rmb189bn ($24bn, €19bn, ₤13bn) that was invested in residential housing, only Rmb6.2bn went to low-income housing.
Combined with the mass relocations of residents to make way for new buildings and dramatic rises in prices in a handful of cities, housing has become one of the most sensitive manifestations of growing inequality in incomes in China.
The top leaders in Beijing claim to be more aware of the fate of ordinary citizens than its predecessors and earlier this month decided to take action. As well as reissuing a ban on the construction of new “villas” – large, detached houses – the government introduced tough measures to force the construction of more low-cost houses.
In what has been nicknamed the “double 70 per cent rule”, local governments were ordered to allocate 70 per cent of new residential land to low and middle-income housing, while developers were told that 70 per cent of all new residential construction projects had to consist of apartments of 90 square metres of less.
But since the new rules were announced they have come in for unusually public criticism from developers and other property professionals, who argue that the government is using heavy-handed planning edicts to try solve a complex problem in need of public money. According to Ren Zhiqiang, president to Beijing Hua Yuan, a property developer: “The Chinese government is trying to put social responsibilities on the head of domestic property developers.”
Mr Ren believes that the new policy is impractical. Take the case of families relocated to make way for new construction, he says. Some Chinese cities have promised about 35 sq m or above to each reallocated resident, so, for a typical family with four members, government would need to provide apartments of about 150 sq m. “ Under the new policy, they would have to put one family into two apartments.” Architects warn that they will be forced to design apartments with peculiar and impractical shapes just to fit within the new guideline.
The complaints by developers should come as no surprise, since they make substantially more profit on luxury housing, which has roughly the same land and construction costs a low priced housing. But if developers begin to shift away from residential property the new rules could become counterproductive. Mr Ren says the guidelines have forced some developers to try to return land they had bought and to get out of paying architects for work already done.
Fan Wei, the chief executive of Shanghai Forte Land, one of China’s largest residential real estate developers, said the group had already been looking at moving into other types of property before the new policy was announced.
Whether the authorities can implement such rules has also been questioned. The ministry of land and resources conceded last week that 60 per cent of land acquisitions for construction in China were illegal because they had not gone through the formal planning approval process. In some cities the figure was as high as 90 per cent.
The figures are the latest indicating that local planning officials often collude with property developers to ignore rules about land use, especially in the construction of luxury housing and showcase projects such as convention centres.
The government has suffered the same experience with efforts to slow down the building of “villas”. It issued a ban on using land for villa construction three years ago, but developers got round the rules by calling the houses by other names, while officials turned a blind eye.
If Beijing really wants to encourage a new round of low-cost housing, economists say, it will have to pay in one way or the other. “Either government-owned developers build cheap housing on the basis of a clear policy mandate, or a subsidy is needed for private developers,” says Stephen Green, an economist at Standard Chartered in Shanghai.
This article, written by Geoff Dyer, was published in the Financial Times of Wednesday June 14, 2006.
Property in Observatory, Cape Town, South Africa on http://www.hotpropertyincapetown.com
In the construction boom that has been electrifying many of China’s cities, developers have given priority to luxury housing over the rest. Of the Rmb189bn ($24bn, €19bn, ₤13bn) that was invested in residential housing, only Rmb6.2bn went to low-income housing.
Combined with the mass relocations of residents to make way for new buildings and dramatic rises in prices in a handful of cities, housing has become one of the most sensitive manifestations of growing inequality in incomes in China.
The top leaders in Beijing claim to be more aware of the fate of ordinary citizens than its predecessors and earlier this month decided to take action. As well as reissuing a ban on the construction of new “villas” – large, detached houses – the government introduced tough measures to force the construction of more low-cost houses.
In what has been nicknamed the “double 70 per cent rule”, local governments were ordered to allocate 70 per cent of new residential land to low and middle-income housing, while developers were told that 70 per cent of all new residential construction projects had to consist of apartments of 90 square metres of less.
But since the new rules were announced they have come in for unusually public criticism from developers and other property professionals, who argue that the government is using heavy-handed planning edicts to try solve a complex problem in need of public money. According to Ren Zhiqiang, president to Beijing Hua Yuan, a property developer: “The Chinese government is trying to put social responsibilities on the head of domestic property developers.”
Mr Ren believes that the new policy is impractical. Take the case of families relocated to make way for new construction, he says. Some Chinese cities have promised about 35 sq m or above to each reallocated resident, so, for a typical family with four members, government would need to provide apartments of about 150 sq m. “ Under the new policy, they would have to put one family into two apartments.” Architects warn that they will be forced to design apartments with peculiar and impractical shapes just to fit within the new guideline.
The complaints by developers should come as no surprise, since they make substantially more profit on luxury housing, which has roughly the same land and construction costs a low priced housing. But if developers begin to shift away from residential property the new rules could become counterproductive. Mr Ren says the guidelines have forced some developers to try to return land they had bought and to get out of paying architects for work already done.
Fan Wei, the chief executive of Shanghai Forte Land, one of China’s largest residential real estate developers, said the group had already been looking at moving into other types of property before the new policy was announced.
Whether the authorities can implement such rules has also been questioned. The ministry of land and resources conceded last week that 60 per cent of land acquisitions for construction in China were illegal because they had not gone through the formal planning approval process. In some cities the figure was as high as 90 per cent.
The figures are the latest indicating that local planning officials often collude with property developers to ignore rules about land use, especially in the construction of luxury housing and showcase projects such as convention centres.
The government has suffered the same experience with efforts to slow down the building of “villas”. It issued a ban on using land for villa construction three years ago, but developers got round the rules by calling the houses by other names, while officials turned a blind eye.
If Beijing really wants to encourage a new round of low-cost housing, economists say, it will have to pay in one way or the other. “Either government-owned developers build cheap housing on the basis of a clear policy mandate, or a subsidy is needed for private developers,” says Stephen Green, an economist at Standard Chartered in Shanghai.
This article, written by Geoff Dyer, was published in the Financial Times of Wednesday June 14, 2006.
Property in Observatory, Cape Town, South Africa on http://www.hotpropertyincapetown.com
posted by Werner Property Agents at 12:48 pm
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