How do you make a real estate developer pay attention and follow the rules? No one seems to know. It is an international complaint. Now, almost a year after the central government introduced the ‘70%, 90 square meters’ policy, a quarterly report released by the National Development and Reform Commission suggests it simply is not happening.
Shanghai Securities News reports, citing a first-quarter real estate market report conducted by the NDRC, that in the first three months nationwide investment in residential units with a gross floor area, or GFA, of less than 90 square meters only accounted for 16.1% of the total.
In May 2006, the Ministry of Construction announced such apartments should account for 70% of a project’s total. The policy applied to residential developments started after June 1, 2006. The policy was designed to raise the supply of small and medium-size homes and discourage luxury houses from being built. And, plainly, it is being totally ignored by the majority of developers.
Nie Meisheng, director of the real estate sector of the Federation of Industry and Commerce, said earlier it is inappropriate to set a fixed percentage to reflect market demand. Nie is also a former senior official with the construction ministry.
In a convoluted piece of logic she said, ‘If the demand exceeds 70%, then the price will continue to rise due to insufficient supply. If the demand is less than 70%, a surplus of vacant property will be created.’
Using this reasoning she thinks the 70% figure is too high.
Yin Kunhua, a former professor at Shanghai University of Finance and Economics, said the 90-square-meter standard might be appropriate for second- and third-tier cities, but could be too small for Shanghai and Beijing.
Beijing has tried to keep to the rule but the market appears to be against it. Knight Frank, a London-based property consultancy, said in a report on April 23 that Beijing’s residential demand is skewed toward large units with sizes well above 90 square meters. (It did not say property developers are skewed to larger units because they make larger profits.)
Knight Frank said that last June, prior to the policy taking effect in Beijing, residential units of more than 90 square meters accounted for 68% of the city’s total residential transactions.
Elsewhere in the country, the policy’s impact has varied. Xavier Wong, director and head of research of Knight Frank Beijing, said, ‘Local governments have different interpretations of the policy due to its ambiguities while demand for small residential units varies greatly in different regions.’
Shenzhen, according to the research, has been the least affected city as demand there is broadly in line with the policy.
Source: Shanghai Daily