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Unraveling the public housing sector mess
August 4, 2011, Thursday
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TWENTY years ago, China had no real estate market to speak of.
Change began when the government ordered state-owned companies to privatize the housing that had been part of the cradle-to-grave benefits they provided their urban employees.
In some cases, their employees were given a shot at buying old apartments; in others, companies distributed newly built housing units to staff - all at heavily subsidized prices.
Either way, much of that housing has since been sold as the new property owners sought upgrades, both for themselves and their children. Those property owners are among the lucky ones.
Since then, the property boom across China's major cities has locked out many young locals and newly arrived urban migrants, shining a spotlight on the growing income inequality within the country and leaving millions in a bind.
In Shanghai, for example, the average purchase price for an upper-tier apartment is 47,465 yuan (US$7,345) per square meter and 22,665 yuan per square meter for a mid-tier apartment, up 110 percent and 100 percent, respectively, from five years ago, according to property consultants Cushman & Wakefield Shanghai.
"When prices are over 20 times more than annual household income, it's not affordable," says Andy Xie, an independent economist .
So as China grapples with high inflation and skyrocketing property prices, the country is also trying to address its politically sensitive public housing issue.
As part of what's been dubbed China's "new deal" program aimed at tackling social inequality and assisting the country's 218 million urban households, the central government has ordered local governments to build 36 million units of "affordable housing" by 2015. But it will be a stretch.
"The 36 million units target is quite ambitious because they are already behind schedule," says James Macdonald, the Shanghai-based head of research at Savills China, a UK property agency.
Rampant corruption
Hefty building costs and the lack of incentives for local governments and developers to be involved in the projects are just some of the hurdles of meeting Beijing's ambitious construction schedule.
And even if the units do get built, there is still much debate about how and to whom they are distributed under the shadow of rampant corruption in many parts of the country.
Doing nothing isn't an option, either. A new paper about China's housing market published for the National University of Singapore's East Asian Institute cites a survey by search engine Sohu in late May in which nearly 90 percent of respondents said the government's new deal is failing to live up to expectations. Patience is wearing thin.
The report's co-authors - Lu Ding, an economics professor at University of the Fraser Valley in Canada and EAI visiting senior research fellow, and Huang Yanjie, an EAI research assistant - say that in the country's metropolitan centers today, house prices per square meter generally amount to between 50 percent and 100 percent of average annual incomes.
"To secure a flat of 90 square meters, an average working family in Beijing and Shanghai will have to work for more than 50 years to pay off their loans, compared to five to 10 years in the developed world," their paper notes.
Renting isn't necessarily any easier, say other experts. In Shanghai, the average monthly rent for an upper-tier apartment is 148 yuan per square meter and 80 yuan per square meter for a mid-tier apartment, up 20 percent and 18 percent, respectively, from five years ago, according to Cushman & Wakefield Shanghai.
As a result, "sky-high housing prices have undermined housing affordability and caused great anxiety and resentment among the public, who are wary of the conspiracy among 'speculators' - developers and government officials in charge of real estate businesses," according to Lu and Huang.
(This is the first part of an article from China Knowledge@Wharton, http:www.knowledgeatwharton.com.cn. The rest will be published tomorrow.)
Change began when the government ordered state-owned companies to privatize the housing that had been part of the cradle-to-grave benefits they provided their urban employees.
In some cases, their employees were given a shot at buying old apartments; in others, companies distributed newly built housing units to staff - all at heavily subsidized prices.
Either way, much of that housing has since been sold as the new property owners sought upgrades, both for themselves and their children. Those property owners are among the lucky ones.
Since then, the property boom across China's major cities has locked out many young locals and newly arrived urban migrants, shining a spotlight on the growing income inequality within the country and leaving millions in a bind.
In Shanghai, for example, the average purchase price for an upper-tier apartment is 47,465 yuan (US$7,345) per square meter and 22,665 yuan per square meter for a mid-tier apartment, up 110 percent and 100 percent, respectively, from five years ago, according to property consultants Cushman & Wakefield Shanghai.
"When prices are over 20 times more than annual household income, it's not affordable," says Andy Xie, an independent economist .
So as China grapples with high inflation and skyrocketing property prices, the country is also trying to address its politically sensitive public housing issue.
As part of what's been dubbed China's "new deal" program aimed at tackling social inequality and assisting the country's 218 million urban households, the central government has ordered local governments to build 36 million units of "affordable housing" by 2015. But it will be a stretch.
"The 36 million units target is quite ambitious because they are already behind schedule," says James Macdonald, the Shanghai-based head of research at Savills China, a UK property agency.
Rampant corruption
Hefty building costs and the lack of incentives for local governments and developers to be involved in the projects are just some of the hurdles of meeting Beijing's ambitious construction schedule.
And even if the units do get built, there is still much debate about how and to whom they are distributed under the shadow of rampant corruption in many parts of the country.
Doing nothing isn't an option, either. A new paper about China's housing market published for the National University of Singapore's East Asian Institute cites a survey by search engine Sohu in late May in which nearly 90 percent of respondents said the government's new deal is failing to live up to expectations. Patience is wearing thin.
The report's co-authors - Lu Ding, an economics professor at University of the Fraser Valley in Canada and EAI visiting senior research fellow, and Huang Yanjie, an EAI research assistant - say that in the country's metropolitan centers today, house prices per square meter generally amount to between 50 percent and 100 percent of average annual incomes.
"To secure a flat of 90 square meters, an average working family in Beijing and Shanghai will have to work for more than 50 years to pay off their loans, compared to five to 10 years in the developed world," their paper notes.
Renting isn't necessarily any easier, say other experts. In Shanghai, the average monthly rent for an upper-tier apartment is 148 yuan per square meter and 80 yuan per square meter for a mid-tier apartment, up 20 percent and 18 percent, respectively, from five years ago, according to Cushman & Wakefield Shanghai.
As a result, "sky-high housing prices have undermined housing affordability and caused great anxiety and resentment among the public, who are wary of the conspiracy among 'speculators' - developers and government officials in charge of real estate businesses," according to Lu and Huang.
(This is the first part of an article from China Knowledge@Wharton, http:www.knowledgeatwharton.com.cn. The rest will be published tomorrow.)
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