Consumer Study of Real Estate Development Exposes High Profits

August 2, 2005 Updated: August 21, 2015

The Fuzhou city Price Control Bureau in Fujian province, China, recently published the results of a study on local residential housing costs. This is the first time such a study has been available to the public in China. According to the study, Fuzhou city’s average residential housing cost is 2,160 yuan per square meter (US$25 per square foot). The average profit is 1,400 yuan per square meter (US$16 per square foot). Land, building costs and utility connections are about 20 percent, 25 percent and 14 percent of the total cost respectively, while overhead, sales costs and profits are as high as 41 percent of the total price.

The China Xinhua Telegraph newspaper reported on July 27, that the study shocked the local real estate community. Some comments were made that the information could cause a backlash against unreasonably high housing prices.

In China, real estate is one of the most obscure industries. Developers know their costs and profits, but never disclose them. Buyers are at the mercy of developers, because they have no idea how the price was determined. The publication of actual housing costs by the Bureau will help to improve such unfair practices. The director of the Bureau, Zhu Guanghua said that the study provided housing development costs to consumers and this improves the transparency of housing cost information. This will ultimately impact housing prices and change developer-driven pricing.

Zhu pointed out that land accounts for only 20 percent of the housing cost. This refutes developers’ claims that the increasing land cost was the main cause of increasing housing prices.

Zhu said that the Price Control Bureau had planned to do the study as early as 2004, but encountered many political obstacles. This is because real estate greatly impacts local economic development. He said, “Many price control agencies have been concerned” and “the provincial government called us often” during the study. The study was completed in March, yet not released until July.

“From March until July, we were attempting to ascertain the potential impact of the study,” he commented.

Zhu also disclosed that the study actually estimated the costs and profit of every house developed, which would have been more helpful to purchasers. However, this information was not published because it was “too sensitive.”

Many residents&#039 first reaction upon learning about the study was that, “It should have been done a long time ago, because the real estate prices have been unreasonably high.”