Chinese Residents' Housing Expenses End Up in Nothing

By Shi Shan, Radio Free Asia
October 13, 2006 12:00 am Last Updated: October 13, 2006 12:00 am

Buying a new home has become the most major purchase for the privileged in China today. In recent years, China has seen an upturn in its housing market. However, for the new Chinese homeowner, land is not included in the purchase price. The rights to ownership of the house itself extend only to 70 years from the date of purchase. These issues fall under the newly defined Chinese real estate concept of “Right-to-use.” Economists and legal experts in China are concerned about the negative impacts of such “Right-to-use” policies. Shi Shan, reporter for Radio Free Asia, invited Guo Guoting, a former Shanghai real estate lawyer, and Wu Fan, editor of for an open discussion on these emerging issues.

Reporter: In recent years, China has seen a dramatic increase in the price of new homes. In certain cities, the purchase price of a new home has increased 20 to 30 percent each year. Yet, because the purchase of a new home only guarantees a 70-year “Right-to-use,” there is a big problem with real estate in China. This problem has been referred to by some Chinese experts as a “time bomb.” Mr. Guo, can you give us some background information on the 70-year “Right-to-use” issue? Is there currently such a policy for home ownership in China?

Guo: That is a very interesting question. My law firm has dealt with similar questions regarding real estate purchases in China. From my best understanding, the 70-year “Right-to-use” policy is based on the original Hong Kong model. But the differences between legal systems and situations in mainland China and those in Hong Kong were not taken into consideration when the policy was first formulated.

You just mentioned the 70-year time frame. In fact, the “Right-to-use” for state-run enterprises such as factories or shops is only 50 years. The 70-year “Right-to-use” applies only to homes. In essence, home buyers have no legal rights of home ownership under this policy. At the end of 70 years, the homeowner loses the “Right-to-use” the property and the house. This is absolutely ridiculous.

Money invested in the purchase of a home is eventually lost. At the end of 70 years, the purchased home is no longer the property of the purchaser.

Reporter: Well, Mr. Wu, would you please share your thoughts on these issues?

Wu: As far as I am concerned, this is a big controversy. Nominally, the property is public owned. It is sold to you for 70 years. Seventy years later, you lose all ownership rights to the property you paid for. This is more like renting a house, not buying a home. In addition, the total “rent” for 70 years is paid up front. Furthermore, additional property taxes must be paid on an annual basis. This is absolute robbery.

Viewed from a global economic perspective, such policies only exist in economically backward countries where all land is solely public owned. Under such governments, personal property is not protected.

Reporter: I have another example. New housing was built in Shenzhen in 1980. The ownership of the builders of the housing also fell under the 70-year “Right-to-use” policy. It has been almost 20 years since the construction was completed. The homes are still for sale. If a young man, for example in his twenties or thirties, buys any of these homes, the housing may be taken back before his death. The homes today are unable to attract buyers because of the “Right-to-use” issue.

Wu: That's right.

Reporter: Will these policies have an influence on the national economy?

Wu: Yes, such policies will negatively influence the national economy. At present, very few people are willing to accept the inherent risk involved in the purchase of a home. The home and the land on which it sits are not your personal possessions. Nominally, it belongs to you, but perhaps more accurately you are a renter of the house. After 70 years your “Right-to-use” the house expires and your investment is lost.

Reporter: Then, why is there such an upturn in the housing market in China? Why do housing prices continue to increase? Would you please discuss this issue Mr. Guo?

Guo: Housing prices continue to increase due to continued speculation in real estate. Speculation results in an economic “bubble” in which prices go beyond true market values. Shanghai is a good example of such a “bubble” caused by market speculation. According to our research, housing in the Shanghai Inner Ring is not affordable for 99 percent of the average perspective homebuyers in Shanghai. Those who buy this housing are speculators and non-locals attempting to make large profits by speculating in real estate. These are the reasons.

Reporter: It has been said that people expect to earn profits from the resale of existing homes. Though the present housing costs are at an all time high, could I make enough to get back the investment in less than 70 years on the resale of an existing home?

Guo: Many people believe that they can make a profit from the resale of an existing home. Real estate speculation occurs in many cities of China for this very reason.

Reporter: The “Right-to-use” policy influences the home buying decisions of many people. Do homeowners believe that in the future the policy will be changed because so many would be affected by it? Is this the reason why people do not appear to be worried by the policy?

Guo: Yes, that is the reason. It is an emotional issue. Everyone thinks this way. Within the next seventy years, everyone will be impacted by this policy. In my opinion, the policy is invalid. The policy appears to be outside what is normally regulated by the law.

Reporter: What actions will the government take as homeowners approach the expiration of their “Right-to-use”?

Wu: I think that most homeowners only hope for the best resolution of these issues. Will there be an equitable solution after 70 years? Even after searching the various chat rooms on this subject on the Internet, I have come to the conclusion that not one person in China seems to have the answer. Everyone seems willing to put off making the hard decisions and to simply wait for a solution to appear. But why wait 70 years to find a solution? At that time it will be too late! We should not wait 70 years to find a solution to these questions. If we do not answer these questions today, we will be discussing them 30 years from today. Surely, these issues need to be discussed before 70 years have expired.

I can envision two possible solutions to the issue. The first possible solution would be to extend the “Right-to-use” for an additional 70 years. A second possible solution would include land reforms in which citizens would have the right to purchase and own the land itself. These are the only two possible solutions that I can imagine.

Guo: Regarding land reform, I think it is, in fact, a problem of China having returned to the original communist system established in 1949. There has not been land reform since that time. I believe we need to adopt policies based on “The Complete Literatures on Six Laws.” Under these written laws, the privatization of land is protected. This is the most important legal basis for a comprehensive solution to the issue.

Reporter: Personally, I think buying a house is less profitable than renting a house, because…

Wu: Yes, I agree with you completely. The current system punishes the homebuyer. The purchase of a home under the current system is not a wise investment. Investments are lost after the 70 year “Right-to-use” expires.

Guo: This is the reason why government officials are particularly willing to develop intimate relationships with real estate tycoons. An official would do anything to earn himself one million yuan (US$ 126,354) regardless of whether the state would in turn lose 100 million yuan (US$ 12.64 million).

Wu: I think this is decided by the Chinese Communist Party (CCP)'s economic policies. I believe that we need to look outside of the CCP to find a solution.

Compiled from recording of RFA