Shanghai Retreats From Commercial-Titled Apartment Ban After Protests

The Shanghai government today announced modifications to its rules punishing owners and developers of commercial-titled apartments after hundreds of homebuyers protested the policy measures over the weekend.

In a statement posted on the city’s Housing and Urban-Rural Development office website today the government ordered administrative bodies to “clean up” enforcement measures to “earnestly safeguard the legitimate rights and interests of buyers.”

The compromise appears to end a battle between city leaders and tens of thousands of homeowners after a sudden clampdown on the use of real estate zoned as commercial space for residential purposes endangered the property plans of purchasers of as many as 240,000 apartments totalling an estimated 12 million square metres.

Real Estate Rule Reversal Now a Thing for Mainland Municipalities

Shanghai’s change of course follows modifications to similar rules in Beijing last month. The crackdown on repurposing of property had rolled through the nation’s largest cities after central government leaders had vowed to tackle asset bubbles during party meetings in March. Guangzhou, Shenzhen and Chengdu have their own new rules restricting residential use of commercial property, although these are less draconian than the approaches taken in Shanghai and Beijing.

The new guidelines modify rules that went into place in May which banned the sale of property zoned for commercial purposes for residential use, while also forbidding the construction or fit-out of such units.

The May restrictions on commercial-titled property as apartments suddenly reversed a practice which had become increasingly common over the last decade of developing and selling commercial land for living purposes in a city where the amount of land made available for housing has decreased steadily over the last five years, and average home prices jumped more than 30 percent in 2016. The unexpected policy change meant many buyers were unable to occupy their properties, and unable to sell them unless they were refitted for commercial purposes.

The sale of such apartments had become so mainstream that commercial-titled units accounted for more than 50 percent of sales for 13 property developers in the city last year, including leading players such as Hong Kong heavyweight Henderson Land, according to figures from local real estate agency Tospur cited in Caixin.

Developers Still on the Hook

While authorities have been told to protect homebuyers, the rules do not offer much hope to developers who may have already purchased land, other than allowing them to fulfill existing contracts.

Hong Kong’s largest developer, Sun Hung Kai will now be able to hand over 100 units already sold at prices of up to RMB 18 million per home at its Shanghai Arch commercial-titled apartment project in Lujiazui. Homes in the developer’s riverfront towers are said to be among the most expensive in Shanghai with prices said to reach up to RMB 260,000 ($38,256) per square metre.

However, any subsequent phases of the high-end development in Pudong’s Lujiazui financial district would have to be built and used as commercial space, potentially creating a new mixed-use hybrid not foreseen in the original plans.

Shanghai has suspended sales at more than 100 commercial-titled residential projects since January, according to Caixin, despite an oversupply of office and retail space in locations outside of the city’s prime business districts.