Homeownership Becomes New Priority for China

Zhang Jingfeng, a 51-year-old accountant, wends her way through several shops along Shanghai’s Jin Lin Road looking at tiles, cabinets, kitchenware and bathroom fixtures.

She and her family recently realized a lifelong dream when they bought a two-bedroom apartment for $59,250 with savings, a company grant and a sizable mortgage. Now they’re spending $12,350 to renovate the kitchen and bathroom in a bet that the market will go up and eventually make it a good investment.

“It’s all quite exciting,” Zhang said.

Except for the modest dollar figures, this could be Glendale. But it’s Shanghai, where homeownership--Western symbol of personal success, powerful engine of growth--is being pushed like never before.

A boom in housing would jump-start the sluggish economy and reduce the staggering government welfare burden, two of the most severe problems China faces in its historic evolution toward a new kind of economy.

On Nov. 17, the central government declared a more vibrant housing industry among its top economic priorities. Shanghai, Beijing and other major cities also have announced plans to ease restrictions, lower real estate taxes, expand financing and sell more state housing to individuals.

More than half of China’s 35 mid-size and large cities now have programs to sell existing state housing to residents. And local governments, led by Shanghai with a $964-million pool, are pouring record sums into low-cost mortgage programs. Nationwide, the mortgage market has doubled in size in each of the last three years, according to the Bank of China.

Buying your own home with hopes of one day making a profit would have quickly branded you a capitalist speculator during the Mao era. Nowadays, the opportunities for many Chinese citizens to buy their dream home have never been so bright.

Many rich Chinese citizens, that is. One problem a freer housing market has highlighted is the growing gap between China’s haves and have-nots, a breach that is expanding as economic reforms take hold.

China’s market is essentially divided into two parts: expensive, newly built private apartments and townhouses, which can cost $30,000 or more, and often shoddily built government housing in the process of being converted.

Even with below-market interest rates, tax breaks, company contributions and a range of other incentives for residents of state housing, pulling together the down payment in a nation where the average per-capita income is $3,600 remains for many an insurmountable challenge.

“For those who make a fortune overnight, it’s not a problem,” said Qu Hongbin, Hong Kong-based consultant with the Bank of China. “But buying a house is still a dream for many ordinary households.”

The effort to invigorate the housing market is part of a gradual shift away from the government’s onetime position that all real estate belonged to the state. While housing has been among the last major economic sectors to be liberalized, Beijing and local governments are by degrees introducing use rights, leases and mortgages.

One big reason is an urgent need for jobs. A booming housing and home renovation market promises to mop up millions of unemployed day laborers, construction workers, and furniture and candlestick makers at a time when state companies are going bankrupt in record numbers.

Huang Xiaohai, a thirtysomething manual laborer, stood recently outside a hospital in Shanghai where he’d come for treatment of an eye injury suffered on the job. He’s been working for the last few years on residential construction sites. It’s tough sledding--he’s up against thousands of other men each day without special skills trying to make a living--but it has allowed him to scrape by.

“I’m working hard to survive,” he said, dressed in a tattered gray jacket and bluejeans. “I often work for lower wages to get the job.”

Housing opportunities also encourage Chinese to open their wallets at a time when the economy is suffering from worrisome deflationary pressures, an anemic banking sector and weak consumer confidence.

“While many people are not spending very much, housing and home decorating are hot sectors these days,” said Gan Ping, Beijing-based marketing research manager with advertiser Dentsu, Young & Rubicam.

A further push is that the government itself is feeling pinched. Free housing under the nation’s cradle-to-grave communism can add as much as 25% to a government enterprise’s wage costs. Step by step, Beijing is raising rents, reducing subsidies, selling off apartments at a discount, forcing new workers to pay market rents and otherwise shifting more costs onto residents.

“The government is trying to separate enterprises from their social obligation,” said Han Hualin, a director with the Shanghai Academy of Social Sciences.

A pay-as-you-stay system also tends to put real estate into more productive hands based on a market, rather than the vagaries of privilege, analysts say, such as when party members may control three apartments while others go without.

As part of liberalization, Shanghai and other local governments have expanded mortgage markets, a relatively new concept in China. Last year, Shanghai’s Housing Provident Fund boosted mortgage lending by 20% to nearly $1 billion as demand spiked. The fund, a model for other cities, collects money from a 5% employer tax and from state property sales and doles out five-year mortgages at a current rate of 4.59%, a percentage point below prevailing commercial rates.

Despite a sixfold increase in the size of the nation’s mortgage market in the last three years, it still accounts for less than 5% of total bank assets. There is also no secondary mortgage market--the equivalent of Fannie Mae in the United States--to better spread the risk.

Nor has the housing market expanded as quickly or effortlessly as central planners would hope. Part of this is the lack of wealth, but a big part is also the fault of planners themselves, who still haven’t worked out many of the policy kinks.

Outright ownership of land is still reserved for the state, while Communist Party officials in many cities still resist the loss of control that comes with a housing system based on economics.

“The cadres had enormous power in their ability to give out housing,” said David Zweig, associate professor at the Hong Kong University of Science and Technology. “Moving it to the marketplace threatens that power.”

Often the interests of the poor are ignored when impoverished neighborhoods are leveled to build new housing. Shen Dongxiang, a 44-year-old office worker in Shanghai, said her small apartment could be torn down at any time, leaving her family on the street. Security is bad and the house is drafty, but it’s all they have. In November, thieves broke in while she was sleeping and stole her shoes. “We could be resettled at any time,” she said. “I’m very worried.”

Also pushed aside are many farmers, like 74-year-old Ying Xiangpu. He grows cotton and wheat on a small wedge on the outskirts of Shanghai, a fraction of the plot he previously cultivated.

“That used to be my land,” he said, pointing to an expansive apartment complex nearby. “We got a little money from the local township, but it wasn’t much. I didn’t want to be working at this age, but we don’t have any choice.”

Developers generally buy 50- to 70-year leases from the government for use of the land, build units and then sell them to affluent buyers who may have to return them to the state after the middle of the century.

Before the Asian financial crisis, people joked that the state bird of Shanghai was a crane--a construction crane. The economic downturn and too much of a good thing, however, have left thousands of apartments and offices empty, a pattern seen in China’s other major cities as well.

Still, the housing markets have generally held up better than the office and commercial real estate markets. During the first half of 1999, for example, commercial investments in Beijing fell 10% to $745 million while spending on private housing grew 41.4% to $855 billion, according to the Municipal Statistics Bureau.

The home renovation industry has also fared relatively well as people rush to fix up both old and new units. “I think this business could be the dragon head that warms up the rest of the economy,” said Wang Huifang, chief accountant with Shanghai’s Ounuo Interior Design Co., which has opened eight branches since 1997. “Look at us. Three years ago we were tiny. Now we’re part of the new economy helping create jobs.”

Finally, as Shanghai expands, some people are trying to get ahead in stages. Du Lipeng, a 25-year-old employee at a shipping company, has scraped together enough to buy a modest apartment. His plan is to save for another year and renovate, then the year after that he’ll have enough to buy some nice furniture. The final goal, he said, is a find a wife to enjoy it all with.

“In Shanghai, the most important thing is to buy a house,” he said. “If you want to marry, you have to have a house. That’s just the way it is. No money, no honey.”