Shanghai Apartment Building Topples

A 13-story residential building under construction in Shanghai toppled over at around 6 am on June 27, 2009, killing one worker. (The Epoch Times)

The toppling of a 13-story apartment building in Shanghai has become a national focus. Many experts say that it’s only the tip of the iceberg of China’s real estate quality issue.

The building toppled over with no provocation, almost remaining completely intact after its fall. China’s National Business Daily called for the industry to reassess its system.

According to the report, normally, the developer’s own capital investment in the project is extremely low. Very often, tens of million are running the project, with a billion Yuan in total value. In the case of the toppled over apartment, the developer’s own investment is less than 10 percent of the total project value.

Mr. Gu Haibo is a Senior real estate researcher in Shanghai, he believes the extreme low ratio developer-owned capital will cause very tight cash flow. In the case of bad sales, it will lead to inferior quality building.

As the majority of real estate development funds come from bank loans, house buyer’s down payment, and construction companies’ advance payment, the large amount arrear of construction funds often mean severe building quality issues.

According to Shanghai lawyer Du Yueping, although advance payment is banned, almost all construction companies practise in this way in order to get the project from the developer, it is the unspoken rule. “The construction company has no choice but to speed up the project, and get the inspection in each phase done as early as possible, in order to get the money for the next project phase.” Thus, hidden quality issues are unavoidable. 

When it comes to the issue of lacking supervision in various aspects like qualifications of the developer, price of land acquisition, planning, construction and final inspection and so on, Du believes that there are many reasons for that—but their system is the main one.

According to current regulations, the developer has control over every step—from laying the building foundation, to the final project inspection. Design, construction, supervision and inspection departments are interest groups tied with the developer. If there are no major issues, they would turn a blind eye, which could potentially affect the quality of the project.

As a result, home buyers are now in a more vulnerable position. Unless it can be proved that a property has jeopardized a person’s life, such as the Shanghai incident, owners cannot get their money back. Owners are forced to wait for a developer to arrange repairs so that their house can meet the standard norm. In the case that the house buyers are in dispute with developers over their contracts. They will have great difficulty in getting their down payment refunded as they cannot provide proof.

Read the original article in Chinese here.