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Small fines no deterrent for unethical developers
By Cao Qian |
August 17, 2011, Wednesday
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Print Edition
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A draft proposal on unscrupulous real estate practices posted last Wednesday on the website of the State Council, China's Cabinet, has triggered outrage among people who see nothing more than a rap on the knuckles for property developers who break the rules.
The proposal, now available for public comment until September 10, says developers guilty of illegal practices will be subject to fines of between 10,000 yuan and 30,000 yuan (US$1,557 and US$4,672).
While contemplating the issue of the punishment fitting the crime, I was reminded of an outing I took a few weeks ago.
I was strolling through a residential project in the suburb of Chuansha, about a 40-minute drive from downtown Shanghai in the Pudong New Area. The development is comprised of 127 units, both in stand-alone villas and in apartment blocks, in a site comprising less than 150,000 square meters.
One of the property sales managers at the site proudly told me that landscaping costs alone at the development topped 100 million yuan. He pointed to a number of exotic imported palm trees planted at the site that he said cost up to 500,000 yuan each.
Thinking back on it, each tree would pay 16 maximum fines.
"Such negligible fines seem to encourage rather than punish real estate developers, inviting them to violate the rules in pursuit of heftier profits," said Jiang Guocheng in a Xinhua news agency commentary. "Even though it is still open for public discussion and subject to adjustment, the trivial amount suggested in the draft proposal can't really dispel worries among the general public that the fines are too small to intimidate unscrupulous developers."
There's no doubt that big profits still grease the wheels of the property market.
During the first week of August, a 350-square-meter apartment at Shui On Land's Casa Lakeville, one of the city's most renowned luxury addresses in Xintiandi, fetched 56.9 million yuan, or about 162,000 yuan per square meter on average.
Meanwhile, in the lower end of the mass market, asking prices for some newly finished rough apartments sitting further beyond the city's Outer Ring Road have well exceeded 20,000 yuan per square meter.
Makes no sense
Developers aren't emerging from all this with clean hands. The forms of malpractice are common public knowledge: hoarding land, changing plot ratios without government approval, shelving sales plans deliberately to increase profits and ramping up prices maliciously.
"The maximum fine proposed doesn't make any sense, if you consider that it's less than the price of a small tree," said Song Huiyong, research director with Shanghai Centaline Property Consultants Ltd, operator of the city's largest estate chain in terms of transaction value.
"While the proposal appears to be designed to further regulate the real estate market by cracking down on unscrupulous real estate developers, it sounds more like a joke to me," he said.
The central government, since late January, has introduced a series of measures to try to rein in property speculation and ever increasing house prices.
The measures lifted down payments and interest rates and restricted the number of homes people can buy.
Property sales volumes have dropped somewhat since the measures were implemented, meaning that potential buyers have gotten the message. However, home prices have remained stubbornly high, suggesting developers have not.
In one of its latest moves, the State Council said in mid-July that the government will intensify tightening policies in cities where home prices continue to register robust gains.
Premier Wen Jiabao urged local governments to abide by efforts to cool the overheated property market and suggested that home-purchase restrictions, at present mainly in larger metropolitan areas, be extended to less affluent and smaller cities.
"The housing market in major metropolitan areas where home-purchase bans are strictly implemented seem to be in a stalemate at the moment, with slashed volumes and unyielding prices," Philip Wu, director for DTZ's East China operations, told an earlier online interview with Netease.com's property channel.
"But many smaller Chinese cities continued to register very strong growth over the past months amid robust market demand," he said. "That's why many Chinese developers, mainly with national or regional portfolios, are still managing to report quite good performances."
China Vanke Co, the nation's biggest developer by market value, reported last week that first-half profit climbed 5.9 percent from a year earlier to 2.98 billion yuan, while revenue jumped 19 percent to 20 billion yuan on expansion into smaller cities where home-buying demand has defied government curbs.
Poly Real Estate Group Co and Gemdale Corp, two days later, said in separate filings to the Shanghai Stock Exchange that contracted areas and values both jumped notably during the first seven months of this year, primarily fueled by business in non-metropolitan areas.
With many who want to buy houses stopped in their tracks and with the government's crackdown on property speculators and prices producing feeble results, one wonders what kind of message policymakers are trying to send with trivial fines for those who cheat an already troubled market?
It would be disconcerting if the message is interpreted as a green light for business as usual by rich developers and more red lights for ordinary citizens who want nothing more than to own the roof over their heads.
The proposal, now available for public comment until September 10, says developers guilty of illegal practices will be subject to fines of between 10,000 yuan and 30,000 yuan (US$1,557 and US$4,672).
While contemplating the issue of the punishment fitting the crime, I was reminded of an outing I took a few weeks ago.
I was strolling through a residential project in the suburb of Chuansha, about a 40-minute drive from downtown Shanghai in the Pudong New Area. The development is comprised of 127 units, both in stand-alone villas and in apartment blocks, in a site comprising less than 150,000 square meters.
One of the property sales managers at the site proudly told me that landscaping costs alone at the development topped 100 million yuan. He pointed to a number of exotic imported palm trees planted at the site that he said cost up to 500,000 yuan each.
Thinking back on it, each tree would pay 16 maximum fines.
"Such negligible fines seem to encourage rather than punish real estate developers, inviting them to violate the rules in pursuit of heftier profits," said Jiang Guocheng in a Xinhua news agency commentary. "Even though it is still open for public discussion and subject to adjustment, the trivial amount suggested in the draft proposal can't really dispel worries among the general public that the fines are too small to intimidate unscrupulous developers."
There's no doubt that big profits still grease the wheels of the property market.
During the first week of August, a 350-square-meter apartment at Shui On Land's Casa Lakeville, one of the city's most renowned luxury addresses in Xintiandi, fetched 56.9 million yuan, or about 162,000 yuan per square meter on average.
Meanwhile, in the lower end of the mass market, asking prices for some newly finished rough apartments sitting further beyond the city's Outer Ring Road have well exceeded 20,000 yuan per square meter.
Makes no sense
Developers aren't emerging from all this with clean hands. The forms of malpractice are common public knowledge: hoarding land, changing plot ratios without government approval, shelving sales plans deliberately to increase profits and ramping up prices maliciously.
"The maximum fine proposed doesn't make any sense, if you consider that it's less than the price of a small tree," said Song Huiyong, research director with Shanghai Centaline Property Consultants Ltd, operator of the city's largest estate chain in terms of transaction value.
"While the proposal appears to be designed to further regulate the real estate market by cracking down on unscrupulous real estate developers, it sounds more like a joke to me," he said.
The central government, since late January, has introduced a series of measures to try to rein in property speculation and ever increasing house prices.
The measures lifted down payments and interest rates and restricted the number of homes people can buy.
Property sales volumes have dropped somewhat since the measures were implemented, meaning that potential buyers have gotten the message. However, home prices have remained stubbornly high, suggesting developers have not.
In one of its latest moves, the State Council said in mid-July that the government will intensify tightening policies in cities where home prices continue to register robust gains.
Premier Wen Jiabao urged local governments to abide by efforts to cool the overheated property market and suggested that home-purchase restrictions, at present mainly in larger metropolitan areas, be extended to less affluent and smaller cities.
"The housing market in major metropolitan areas where home-purchase bans are strictly implemented seem to be in a stalemate at the moment, with slashed volumes and unyielding prices," Philip Wu, director for DTZ's East China operations, told an earlier online interview with Netease.com's property channel.
"But many smaller Chinese cities continued to register very strong growth over the past months amid robust market demand," he said. "That's why many Chinese developers, mainly with national or regional portfolios, are still managing to report quite good performances."
China Vanke Co, the nation's biggest developer by market value, reported last week that first-half profit climbed 5.9 percent from a year earlier to 2.98 billion yuan, while revenue jumped 19 percent to 20 billion yuan on expansion into smaller cities where home-buying demand has defied government curbs.
Poly Real Estate Group Co and Gemdale Corp, two days later, said in separate filings to the Shanghai Stock Exchange that contracted areas and values both jumped notably during the first seven months of this year, primarily fueled by business in non-metropolitan areas.
With many who want to buy houses stopped in their tracks and with the government's crackdown on property speculators and prices producing feeble results, one wonders what kind of message policymakers are trying to send with trivial fines for those who cheat an already troubled market?
It would be disconcerting if the message is interpreted as a green light for business as usual by rich developers and more red lights for ordinary citizens who want nothing more than to own the roof over their heads.
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