Hundreds of chanting protesters took to the streets to voice their displeasure with new housing regulations in Shanghai on Saturday night, with video surfacing on social media of a large crowd marching in a busy downtown shopping district and ultimately being dispersed by police.
The protesters on East Nanjing Road, many of them waving signs and shouting demands, were angered by a measure announced by Shanghai’s housing bureau on May 17 to crack down on “commercial-to-residential” projects, or commercial office projects that are converted into apartments. The new rules have effectively destroyed the value of many homeowners’ purchase by banning developers from installing fixtures such as toilets and kitchens in units that had been built on land zoned for commercial uses.
Buying an Illegal $2.6M Home From Hong Kong’s Biggest Developer
According to media reports, an estimated 17 million square metres of existing projects are affected by the new crackdown, equating to some 170,000 people. Among the homeowners burned by the restrictions are people who bought commercial-titled apartments at Shanghai Arch, a project in Pudong’s Lujiazui financial district built and marketed Hong Kong’s largest developer, Sun Hung Kai Properties.
The South China Morning Post reported that over 100 buyers who last year purchased units at the waterfront luxury serviced residence project at prices of up to RMB 18 million ($2.6 million) now face the prospect of huge losses, and the Hong Kong giant has been forced to stop selling the remaining units at the development.
Cracking Down on Dodgy Building Practices
The notice recently issued by the Shanghai Municipal Housing and Urban-Rural Development Bureau states that the practice of commercial-to-residential conversion violates “relevant laws and regulations; it brings serious safety hazards,” adding that the controls could “protect the order of the property market and protect real estate buyers’ legal rights.”
Prior to the crackdown, property developers had taken advantage of a legal grey area by snapping up commercial land at lower prices than residential-zoned land to either build apartment projects, or build commercial projects that are subsequently converted to apartment buildings. While the government’s reaction is new, the practice of selling commercial space as housing, and even building residential projects on land zoned for commercial purposes is not, with property consultancy JLL having published research on the practice nearly five years ago.
Under the new regulations, homeowners who had bought commercial-titled apartments but had not yet moved in are left stranded, as they now cannot obtain property ownership certificates. And owners of such repurposed space who have already put them to use are now banned from reselling the units.
Shanghainese Protest After Beijing Backed Down
The rule change followed a move by the Beijing city government in late March to restrict the sale of commercial-titled apartments and ban banks from extending loans for the purchase of such dwellings. The Beijing restrictions also set a minimum floor area of 500 square metres for each commercial-titled apartment unit. Guangzhou, Shenzhen and Chengdu followed suit with their own related but less stringent rules.
After Beijing announced the unprecedented measure, commercial-titled apartment sales ground to a virtual halt within days. That strangulation of homeowner hopes brought a quick reaction in early May, as scores of homebuyers gathered outside the city’s housing authority to protest the restrictions that had slashed their value of their homes, often by half or more. The city’s authorities backpedaled in the face of the uproar, lifting the ban in late May.
Taming Home Prices by… Reducing Housing Supply
The insistence on using commercial space for business purposes marks an about-face for housing authorities who were previously keen on encouraging developers to convert commercial buildings into residential units. The central government greenlighted the practice in June 2016, with the aim of absorbing excess commercial inventory while simultaneously boosting housing supply to meet the needs of new urban migrants.
Surging home prices in 2016 and early this year prompted the central government in April to issue new regulations on the supply of residential land, following the unsuccessful efforts of dozens of cities to tame the market by tightening restrictions on home purchases. Home price growth and sales volumes eased nationwide in April compared to March.
The series of crackdowns on trading in commercial-titled apartments in China’s major cities since March is reported to be a continuation of the government’s drive to rein in home prices and property speculation. While the government has been successful in discouraging high-end transactions in the country’s major markets, reducing the supply of new homes available for sale – whether bearing residential or commercial titles – has yet to drive down prices or reduce public anxiety over the rising unaffordability of shelter.