Hu Bin is your archetypal Chinese real-estate entrepreneur. Built like a bull, with a huge, moon-shaped head, a permanent grin and tiny, nicotine-blackened teeth, he is also the embodiment of Beijing’s sudden determination to use its huge capital reserves to buy the world.
Despite an estimated £5 billion fortune, Hu Bin would normally have remained a low-key figure, even in China. His company, Shanghai Zhongzhou International Holding, is the unlisted owner of isolated packets of high-end residential property dotted around Shanghai. But on 17 October he did something guaranteed to attract the attention of the world’s press, splashing out £15 million on a 40,000 square metre artificial island off Dubai and promising to spend £100 million turning it into a miniature Shanghai.
Hu’s confidence is one more sign of the power of emerging China. By planting a Chinese flag in the Dubai sand, he’s announcing the next leap forward in the development of China’s property sector. He has also become the perfect embodiment of the country’s ever-widening divide between rich and poor, in which entrepreneurs and party members lucky or skilful enough to manipulate the system quickly leave behind the vast, penurious majority. Investment in Chinese residential and commercial property in the first seven months of 2007 amounted to the equivalent of £79 billion, up nearly 30 per cent year on year and spurred on by rising incomes, a booming economy and relatively low interest rates.
The sector has been further boosted by Beijing’s attempts to strengthen real estate protection for private residents. In March a long-awaited property law was introduced to provide equal protection for buildings owned by state and private interests. It was formally enacted last month during the country’s rubber-stamp National Congress — and all eyes are now on the first court case filed under the new law, in which a 60-year-old man in Beijing is suing a property auction company for confiscating six apartments from him in 2002.
The case got off to a false start when it was revealed that the plaintiff had taken bribes to secure the property, and further delayed when the auction-house owner turned up claiming that he hadn’t received the subpoena. However well intentioned, the new law will not be easy to enforce. This is nothing new: China has introduced tens of thousands of new laws over recent decades, but in all too many cases no one has a clue how to implement them.
Not that this has prevented a tiny group of mainland Chinese becoming astronomically rich, in a country where average annual income barely exceeds £1,000. Five of the richest ten have made their fortunes from property, according to Fortune, including Yang Huiyan, whose company, Country Garden, completed its £800 billion Hong Kong flotation in April. Many of China’s newest real-estate nouveaux riches owe their riches to the almost insane run-up in Shanghai and Hong Kong shares this year — Hong Kong’s Hang Seng share index gained more than 50 per cent between 17 August and 26 October, breaking through the 30,000 mark for the first time. Thanks to market buoyancy and a munificent father who transferred 70 per cent of the company’s shares to his daughter prior to the IPO, Huiyan is now not just the richest 26-year-old on the planet but the world’s third-richest woman, worth £8 billion.
Chinese real estate has also made its impact on Hong Kong’s insatiable market for IPOs. Local investors are addicted to the generous stock bump that tends to occur on day one of each mainland-related offering, and this year has provided a steady stream of property-related issues: nine Chinese real estate firms have sold shares, sucking in £4 billion in capital. Behind these ventures are Chinese wheeler-dealers who have become adept at buying favours from the country’s multitude of bent bureaucrats, yet still live in fear that their wealth will be confiscated by a fickle government, or their children kidnapped by criminal elements among the seething masses frustrated by their own poverty and inability to find affordable housing.
This is a serious issue in China, where increasing numbers of young urban workers find it hard even to rent a tiny apartment within reasonable distance of their workplace. Zhang Xin, a mobile phone salesman three years out of university, moved to Beijing from rural Anhui province last year. After tax, he takes home roughly £200 a month — not enough to secure a cramped one-room rental in the city. Instead, he rents a small flat in Tongzhou, east of Beijing, travelling five hours a day to his job on the other side of the capital.
Yet Zhang doesn’t moan (much): in many ways he’s one of the lucky ones. Many newcomers to China’s boom cities simply can’t afford an apartment at all. That has created a new form of tenure, ‘collective rentals’. Reminiscent of Victorian slum dwellings, each apartment is subdivided into ten or 12 smaller units, in which migrant workers, fresh from the countryside, are crammed three or four to a room. Residents who have bought whole apartments elsewhere in the same buildings complain of the smell created by collective rentals, with rubbish blocking the halls and surrounding land used as an open latrine.
Yet despite the shortfall in available apartments, large chunks of residential complexes in cities such as Beijing and Shanghai are unlit at night. This usually signifies a so-called ‘black apartment’, bought by a rich property owner as a quick investment. The apartment is kept deliberately empty to enable the owner to ‘flip’ it if a generous buyer (often another investor) comes along. It’s perfectly legal, but it does nothing to lessen the resentment felt by tens of millions of workers denied access to the property market.
Very occasionally people attempt to rebel against the system, notably when they are turfed out of their houses to make way for giant new commercial or residential complexes. Some families hold out while entire neighbourhoods are demolished around them, leaving a single so-called ‘nail’ house standing alone amid a morass of mud and new construction. In rare cases this even forces developers, through sheer embarrassment, to pay a fair value for the property.
To be fair, tentative attempts are being made to address these problem. In July 2006, Beijing moved to halt the purchase of residential real estate by foreign individuals — though funds run by the likes of Morgan Stanley, ING, Singapore’s CapitaLand and Hong Kong’s Sun Hung Kai can still do so. And earlier this year, rules were introduced to make mortgages significantly more expensive for second-home owners than for first-time buyers. Yet neither ruling will make much difference. Foreign investors make up less than 5 per cent of the market, while powerful domestic investors, armed with suitcases full of cash, have little need for mortgages.
None of these issues are likely to halt the astonishing rise of China’s property market. That rise may endear itself to foreign investors buying Hong Kong-listed securities and mainland entrepreneurs trying to decide which desert island to buy next. But it does little to ease the mounting frustrations of a disenfranchised populace unable to afford even the humblest homes of their own.