A quiet revolution is underway in China's housing market. Since the beginning of the 1990s the central government has implemented a number of reforms in-tended to relieve local governments of the burden of maintaining cheap housing for all. But, as usual, the change in Beijing is happening rather more slowly than in other cities.
In 1992 the Beijing municipal government issued a series of regulations to reform the original work-unit (danwei) housing system. A municipal housing fund was established, rents on danwei apartments started to climb and commercial development began on residential projects for the domestic market. Danwei apartments are also set to be sold off to their original occupants at discount prices. In Shanghai a high proportion of such apartments have already been sold off but in Beijing, with its huge numbers of government employees, the process has barely begun.
Massive building need
Housing policy has gathered momentum on the national stage. In a speech to the National Housing Reform Work Conference in Chengdu this January, vice-premier Zhu Rongji said: "In light of the increase in the masses' purchasing power and their demand for houses, we should build large numbers of low-price, economical and practical houses and quicken the pace of housing commercialisation."
According to the Beijing municipal master-plan, per capita living space is expected to increase from 7.9 sq metres in 1997 to 9.5 sq metres in 2000 and 11 sq metres by 2010. Official estimates place the amount of medium-priced housing needed in Beijing at 5.5m sq metres before 2000. Dutch firm ING estimates that the annual demand for local housing in the capital is even higher, at 7m-8m sq metres a year until 2005.
Based on the average of 1.12 per cent annual population growth in Beijing and the targeted improvement in living space, 23m sq metres of new housing has to be built by 2000 and an
The anju housing deal
The term 'anju' is a government welfare scheme which aims to provide affordable housing for low- and middle-income families. The scheme, which operates in 200 Chinese cities, draws funds from both the state sector and private developers. Government-mandated loans at commercial rates are provided by state-owned commercial banks. The loans provide guaranteed credit and are used to finance the purchase of land and construction of apartments.
Commercial real estate companies then build anju housing at cost price as part of a deal allowing them to develop commercial projects. In Beijing, commercial developers typically construct 30 sq metres of anju housing for every 100 sq metres of commercial housing. The cost of building anju apartments is paid back by local government, but developers have to bear loss of income on capital employed.
other 73m sq metres in the decade to 2010. Property developers operating in the inner districts of the city are also expected to benefit from the demand to renovate dilapidated housing within the third ring-road. As much as 10.5m sq metres of housing a year may be slated for renovation.
At least, that is the theory. Implementation has not been so simple. Even the cheapest commercial housing built to pro-mote home ownership among low- and middle-income families is beyond the means of the average household (see box). 'Anju' housing in less-desirable suburbs sells for Yn2,000 (US$241) a sq metre. A 50-sq-metre apartment might cost Yn100,000, which is around five times average household in-come. An apartment close to the city centre is likely to be 15-20 times average income, compared with the 3-5 times common in, say, London or New York.
Municipal officials recently admitted that they had miscalculated. Beijing is now to allow residents from other parts of the mainland to buy homes in the city to try to revive the flagging property market. From September 10, anyone holding a temporary resident certificate issued by Beijing police will be allowed to buy housing built for commercial sale in the city. A government official at the Municipal Urban Construction Commission commented: "Beijing has too much stockpiled commercial housing."
Safe bet for developers
Most of this housing is in the polluted industrial suburbs in the south-west of the city, while the most popular area is on the east side. As Beijing's housing market develops it is showing a universal characteristic ?location is main determinant of price. Mr Jonathan Hannam, a manager at property consultant First Pacific Davis, says that any development between Beijing's second and third ring roads is a relatively safe bet for developers, because there is a dearth of high quality housing within range of the city centre. No villa developments in this area have been granted a licence in the last five years, and the companies most active in the centre of Beijing are producing 'low-cost' commercial housing.
In the long-term, prospects for developers in this sector look good. Profit margins on low-cost developments are in the 10-15 per cent range — only slightly lower than those in more ex-pensive villa projects, according to Hannam. Risks are also much lower. The main local players are Beijing Urban Construction Development Group, Beijing Real Estate Corp., and Hong Kong listed but mainland-controlled China Resources Beijing Land.
Beijing Land claims to have bought 2.67m sq metres of land to develop ?60 per cent for ordinary residential developments. The company focuses on developing old and dilapidated buildings and developing residential districts in the suburbs. It is currently focusing on the Xicheng district since it has a 62.5 per cent stake in Beijing Huayuan Corp., which falls under the supervision of the Xicheng district government.
China Resources Beijing Land achieved a 75 per cent growth in net profit in the first half of 1997. Growth rates like this have persuaded foreign players to enter the market. ING Real Estate , is the first Western company to have invested in a local housing project. "Low-cost housing is the focus area for government encouragement and support, and the sector with the highest demand," says ING manager Richard Price. "Local developers are already very active."
Unlike some other Chinese cities, the capital is not offering guaranteed rates of return to overseas investors, but the market for apartment purchases by Chinese work units is buoyant. For example Chinese banks pay Yn9,000-10,000 a sq metre on apartments for their managerial staff.
"Many state companies still have a social obligation to pro-vide housing for staff or may often do so simply to retain their best staff," says Price. "The companies are often based within the western third ring-road ?an area where land values have risen rapidly. For the staff, the new housing may not be much better in terms of quality or location than what they were accustomed to, but it costs the danwei a lot more. That said, property in these locations is a good investment for state banks [and other organisations]."
ING has invested US$12m for a 50 per cent stake in a 600-unit development close to Beijing's east fourth ring road. The average apartment price will be US$38,000 (or Yn4,500-5,000 a sq metre), placing the project in the middle of the local commercial market. ING is confident that the location will ensure strong sales ?developers of a new high-rise block close by have sold 95 per cent of units to individuals.
However, it will be some years before the individual market for commercial housing develops in Beijing. Property analysts estimate that individuals account for just 10-15 per cent of the total house sales market. It is unlikely to grow rapidly in the next few years when so many government employees still pay peppercorn rents for work-unit apartments in the city centre.
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