Property in China

Some late night readings helped to fill in a few holes in the my question of the year…what is going on in these cities?

Despite being surrounded in an uber-left wing environment during my time at UVic, I don’t hold very strong socialist tendencies. However, there are a number of items I feel should involve and active government presence and acting in the defense of the public body and their interests is one of them.

Take this example of the relationship between governing bodies in a typical Chinese cities and development companies.

In the absence of a true private real-estate industry, most development companies in the 1990’s were actually spun off from sub-municipal government agencies or from ‘construction brigades’ that originally carried out central government directives. Under decentralized fiscal conditions, these companies enjoy both freedom to pursue profits as well as extremely tight relationships with the agencies that spawned them. State control of most of the urban land facilitates land assembly and further exacerbates this close relationship. Therefore, urban plans tend to be either subverted or used as blueprints depending on the extent to which they anticipated and accommodated imminent development intentions when they were drawn up. They rarely serve as regulating tools (Abramson 204, 2006).

My understanding is that any drafted city plans are merely just a plan – a suggested course of action to be followed by choice, and ignored if need by. Adding to this is the idea that city governments raise a large portion of their operating budget from land-use sales which creates a very strong incentive to develop land quickly as possible, often at odds with other land-holding government bodies or agencies. This helps to add a piece of explanation to the giant mosaic question of the seemingly endless construction of massive buildings seen in every urban region of China.

But when government is the developer, the developer the government and significant portions of government operating budget derived from land-use sales, who who acts in defense of the public interest? Who can the individual trust to look out, fight and protect their interests?

Just that should raise a lot of concerns for those interested in purchasing real-estate in China. I know of a number of foreigners in Nanjing who have purchased property-use rights with their local spouses and whom (for the most part) love to rattle off about how much their rights have increased in the past X number of years. Real-estate is a hot area in China. Many hold true to the idea of a bubble, although no one seems to be able to speculate as to when it would pop. Given the huge profits found in this area, vested parties are interested in keeping prices as high as possible for as long as possible. Government, obviously, is one of the largest players but also holds the very powerful position of being easily able to manipulate and control the field to meet its own ends.

But knowledge of the above rules out any participation in my part. Not that I currently have the funds to purchase property rights, but even if I did, I think I could think of better, safer, more profitable investments. Rent in Nanjing is ridiculously cheap relative to property-right prices and I am of the opinion that if one is going to saddle themselves with a mortgage, it might as well be one with solid private land rights (like in your home country – if you have the choice, why not?) I spend slightly over one thousand dollars a year for my apartment – that figure is probably the equivalent to about an month and a bit of a mortgage payment.

Call me risk-adverse but real-estate security and property rights haven’t quite reached the levels that inspire the confidence I would need to invest. Even with the increase in homeowner associations, I don’t believe they carry enough political clout to act as a counter weight against the heavy hitting developer/government tag team. I want the knowledge that someone or something is looking out for my interests as a property (property-right) owner and with the obscure and interlocking relationships between the government, developers and real-estate companies does little to mitigate my feelings.

Abramson, D. (2006) Urban Planning in China. Journal of the American Planning Association 72(3). 197-213.

*on a unrelated note, the link to UVic brought me to the homepage which was profiling my old geomorpholoy/hydology professor, Ian Walker.

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