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Cheers to possible easing of 70/90 rule

THE Shanghai government has given a signal it may be relaxing its requirement that 70 percent of residential developments be dedicated to small and medium-sized homes, three years after introducing the controversial policy which was aimed at reducing a glut of luxury houses.

The Shanghai Urban Planning, Land and Resources Administration Bureau stipulated no ratios for homes of 90 square meters or less in a document which contained bid specifications for the largest residential plot to go under the hammer this year.

The document, released last Tuesday, covers the Zhaoxiang development, a 210,288-square-meter residential site in Shanghai's Qingpu District.

The bureau hasn't commented on the rule change, but developers are interpreting the auction document as a hopeful sign that the restriction is being eased.

"The relaxation of the 70/90 restriction will allow developers to have more flexibility to build the right homes to respond to market demand," said Hingyin Lee, director of research and advisory for east China operations at property services firm Colliers International.

"It helps achieve a better supply-demand balance, both in the mass market and in the luxury segment," he said.

Shanghai is not the first city in China to apparently relax the requirement. Nanjing and Beijing earlier signaled they were taking similar steps to scrap the cap, according to media reports.

"It is absolutely good news to developers because it allows more freedom in home design," said Pan Haiying, a planning department manager at Shanghai Zizhu Real Estate (Group) Ltd, a property developer based in Pudong New Area.

In May 2006, the central government's then Ministry of Construction - now known as the Ministry of Housing and Urban-Rural Development - announced that the combined gross floor area of all units of 90 square meters or less should account for more than 70 percent of a residential project.

The so-called 70/90 policy, applied to residential developments with approval to commence work after June 1, 2006, was designed to increase the supply of small and medium-sized houses and discourage the building of luxury homes.


"While the original purpose was to offer people more affordable housing, especially in the central areas of the city, the scheme seems to have been rather unsuccessful so far," said Jenny Wu, director of residential for east China operations at real estate services provider DTZ.

"The lifting of such a cap on the Zhaoxiang land plot will enable developers to design apartments catering for real market demand and is therefore expected to offer home buyers better housing choice," she said.

The 70/90 initiative has been controversial from the start.

Nie Meisheng, a former official with the then construction ministry and now director of the real estate division of the Federation of Industry and Commerce, earlier said she thought the 70-percent ratio was generally too steep and any fixed proportion was inappropriate because demand for small and medium-sized homes varied from city to city.

Yin Kunhua, a retired professor at the Shanghai University of Finance and Economics who specializes in real estate research, said the 90-square-meter standard might work in smaller urban areas but the rule was too restricting for big, affluent cities such as Shanghai and Beijing.

The policy was doomed perhaps by unequal application, industry people said.

The municipal government in Beijing showed the least flexibility in implementing the policy and suffered an immediate slowdown in residential property construction, as many developers refused to modify their plans and left projects idle, mainly in anticipation that the policy would be revoked.

Some media reports suggested that more than 600 projects due to start in China's capital in the second half of 2006 were delayed because of the policy.

Flexible approach

Meanwhile, in other cities such as Guangzhou and Shanghai, municipal officials adopted a more flexible approach, implementing the restrictions on a citywide basis rather than project by project. That gave developers more leeway.

In Shanghai, the majority of small and medium-sized homes built to conform to the policy were constructed in more outlying areas, with the result that the curb in the downtown districts could be eased.

"Without any doubt, there has always been demand for smaller apartments, especially from newlyweds and budget-minded young people who come from other provinces," said DTZ's Wu.

"But we're seeing an ever-increasing demand from people seeking to upgrade their homes, and they usually prefer larger houses," she said. "Many of them choose to live outside downtown areas because of affordability issues."

Some analysts said the apparent easing of the 70/90 policy is timely because Shanghai has made strides in its efforts to establish a housing guarantee system that caters to the needs of mid- to lower-income households.

"The 70/90 policy was initiated three years ago to help more people afford houses by cutting apartment sizes," said Zhang Xiuqin, an analyst with E-House (China) Holdings Ltd.

"However, with more affordable homes being built across the city, it was just a matter of time before the cap was lifted."

The Shanghai municipal government has targeted the construction of about 93 million square meters of new housing between 2008 and 2012.

Of the total, 20 million square meters, or about 300,000 units, will comprise budget homes of about 60 square meters as well as low-rent apartments.


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