Chinese Owners of Dual Use Properties Stuck in Asset Limbo
Beijing, along with other major cities impose what analysts say are China's stiffest property restrictions
A recent government decision regarding dual use property has left thousands in China in asset limbo and over the past few weekends residents in Beijing and Shanghai have started taking to the streets to vent their frustration with the policy change. Over the weekend, homeowners strolled around a major shopping complex in the capital, some of whom were taken away by police as they tried to draw attention to their plight. Scores of police vans and officers were out calming the streets around the Sanlitun’s Taikoo Village shopping mall. A decision by Beijing and other major cities in late March to impose strict measures for loft-style apartments has dealt a huge blow to homeowners in China's already highly regulated property market. Analysts say the city’s new regulations are the stiffest property restrictions to date. The measures include raising down-payments on mortgages as well as toughening home buyer eligibility requirements. The government curbs have immediately put a halt on sales of such properties, of which owners say values are quickly slipping. “There’s definitely a negative impact. The new policy has a bigger impact on such properties, which were not as restricted [in the past as residential property]. A 20 to 30 percent price decline can be expected when closing sales,” a real-estate agent surnamed Zhang told VOA. Among the country’s first-tier cities, Beijing has the harshest terms, which stipulate that, starting March 27, only commercial buyers will be allowed to purchase such dual use properties. The policy is aimed at ensuring that properties with a minimum floor space of 500 square meters are only for commercial use. The city insists, however, that existing owners’ rights would be safeguarded as they can continue their residential use of the properties or resell to individuals in accordance with the new guidelines. One homeowner surnamed Bi said the government's safeguards are meaningless as the market has now cooled dramatically. He purchased his dual use property because it was cheaper and his only option as someone who does not have legal residence in the city. In China, a wide range of citizens’ rights are restricted based on a system of household registration called a hukou. "Many migrant workers [like me] in Beijing had rushed to purchase [dual-use property]. Since it was allowed, our ownership should be considered legal,” Bi complained, “Yet, the latest restriction has caused our property value to plummet. It’s hard for our units to change hands now since no one is interested in buying.” Analysts say the trend of migrant workers buying up such property has worried the city government as it strives to cap population growth. Typically, dual use property on a 40- to 50-year land-use lease is sold at half the pricing of residential property on a 70-year land-use lease. But owners have to pay a higher tab for commercial utility rates and face relatively graver health hazards as the property’s fire safety regulation may not live up to residential standards. “If dual-use property is fully occupied by residents, the population will see huge growth. With an aim to cap population, the capital city has to exert property ownership controls to contain population growth, which also helps deflate some of the property bubble or demand,” said a senior real-estate analyst, who requested anonymity.. According to E-House China's statistics, Beijing's sale of dual use property more than tripled in recent years from some 11,500 units annually in 2008 to 41,700 units last year. What has equally worried the government is the speculative investment in such property, the analyst said. He noted that investors were taking advantage of the dual-use property market’s loophole to buy up multiple units - a restriction that applies to residential property. Property is seen as one of the safest insurance places for Chinese citizens to invest given the unpredictability of the nation’s stock market and low interest rates at banks. In addition to Beijing, other cities such as Shanghai and Guangzhou have also announced cooling measures. Inventory level With the inventory level of dual-use property still running high, big developers are trying to find ways to repackage their products for future liquidation, analysts say. Paul Lin, director of JLL Strategic Consulting for North China, recommends owners and developers could find the way out through the commercial leasing market. “For those, [which] are located in the right location, generally, the leasing market is pretty good. What they need to do is to maybe make some small changes to improve some of the services and quality of their leasing space. And there is [still] demand for these commercial units,” Lin said.