Dreams to Buy Own Housing in China Come True

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Last updated at: (Beijing Time) Thursday, August 21, 2003

Dreams to Buy Own Housing in China Come True

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Buying a home is a relatively new concept in China, but the government wisely eased the housing situation from that of allocation during the planned economy to helping low-income urban families purchase housing for themselves.

Fortune smiled on Xue Yuanchun and his family of five in 2001 when the Beijing municipal government decided to rebuild the Jinyuchi neighbourhood where they had lived since 1969. Literally translated as "goldfish pool", Jinyuchi in downtown Beijing had neither goldfish nor a pool, just an expanse of decades-old concrete blocks hastily built to accommodate the rapidly growing population of the Chinese capital. There the five Xues occupied a 20.7-square-metre apartment. "When my sister would come to visit for the Spring Festival, we had to put her up in the kitchen," Xue Yuanchun recalled.

The family moved into a new, more spacious flat measuring 128 square metres in January 2003, just before this year's Spring Festival. Xue Yuanchun's sister arrived as usual, but this time, a guest room awaited her. Jinyuchi is now home to a brand new residential estate of 41 multi-storey buildings, where living space averages 27.6 square metres per person. In the past, 10 people would have shared the same amount of space. "We now have both goldfish and a pool," Xue said, referring to the ornamental fish swimming in a 1,000-square-metre pool at the centre of the estate.

Altogether, 3,000 families benefited from the Jinyuchi housing project, a showcase of the housing reform that has been taking place all across China for well over two decades. "Housing for the needy" is the point of departure for the reform and its end result. Now China's urban population enjoys housing space of 22 square metres per person on average, up from a mere 3.6 square metres back in the early 1980s.

When the late Chairman Mao Zedong proclaimed the founding of the People's Republic of China 54 years ago, the Soviet-style planned economy was the only ready blueprint for the country to follow in striving for national reconstruction. In Chinese cities, housing became a fringe benefit for staff members of government institutions and industrial workers, which amounted to a social welfare programme as virtually all industrial enterprises in China were owned by the State. Housing was distributed according to official rank or job seniority. Rents were nominal, barely enough to cover the expenses of housing repairs. Believe it or not, a room of a dozen square metres cost just two or three yuan - less than one US dollar.

This way of distributing housing was once lauded as a "superior benefit of socialism". As time went by, however, factories - as well as government institutions - found themselves pressed into a corner. According to Hou Ximin, deputy director of the Housing and Real Estate Department at the Ministry of Construction, factories had to spend up to 40 per cent of the funds allocated to them annually by the government on building and repairing housing.

Neither was it possible for the government to provide enough housing for its citizens, given the nominal rents paid all over China. The housing shortage became increasingly acute. Families of two or even three generations sleeping in the same room were not exceptional. "Moreover," said Hou Ximin, "corruption was inevitable, as in many cases housing was distributed according to rank."

Commercialization trend

This state of affairs began to change after Deng Xiaoping, the late chief architect of China's reforms, took over at the end of the 1970s. The reform-and-opening policy China adopted under Deng's leadership was designed to eventually create a "socialist market economy". "Under a market economy, housing is bound to become commercialized," Hou said.

Deng's policies have changed China beyond recognition, but some legacies of the planned economy will not disappear overnight, including the old practice of housing distribution. "People had got used to depending on the government to provide living space, and few ever considered buying their own homes," Hou explained. "Moreover, the vast majority of China's wage earners did not have enough ready cash to make such a purchase. Banks, for their part, were not yet extending home loans to individual citizens."

Real change came in 1994, when the government called for the "housing accumulation funds" to be established. The new policy obliges an employee to deposit 5 per cent of his or her monthly wages into the fund as set up by his or her "work unit", while the employer contributed an equivalent amount. With the fund as the guarantee, the employer or employee may apply for bank loans to build or buy homes. "The policy enables the government, employers and individuals to share the capital investment in housing construction," Hou said.

By the end of 2002, the programme covered 65 million Chinese, of whom 20 million had bought homes. Housing accumulation funds set up across the country involved a total of 413 billion yuan (US$49.9 billion), 151.9 billion yuan (US$18.35 billion) of which was used to help people purchase homes.

The process was an initial step towards privatizing housing owned by the public sector. This was followed by a genuine breakthrough when, in 1997, the government decided to stop the distribution of housing owned by "work units" or local governments. Since then, people have been encouraged to buy homes on the open market instead of waiting for their employers to provide them with accommodations.

The policy boosted the development of China's real estate industry. By the end of 2002, residential buildings with a combined floor space of 3.4 billion square metres had been built, equal to the total built during all four decades prior to 1997. In addition, 500 million square metres worth of older buildings had been rebuilt or renovated. Official statistics show that individual citizens accounted for 94 per cent of those who bought homes in 2002. The same year also saw an increase in home loans extended by China's commercial banks from 19 billion yuan (US$2.3 billion) in 1997 to 825.8 billion yuan (US$99.8 billion).

Back in Jinyuchi, Xue Yuanchun and his family were compensated with 160,000 yuan (US$19,330) when their old apartment was pulled down to make room for the new residential estate. With that money, plus a loan of 280,000 yuan (US$33,830) borrowed from the Industrial and Commercial Bank of China, they bought the apartment they live in now. The loan is being paid back in monthly installments of 900 yuan (US$110) over 20 years. "That will hardly be a problem for us," said Xue Yuanchun, who works at a hospital. The family earns about 6,000 yuan (US$725) a month, including Xue and his wife's salaries and his parents' old-age pensions.

Housing for the needy

Villas and Western-style townhouses have been springing up in Chinese cities, the target buyers being those who have got rich under the reform policy - merchants, industrialists and film, TV, sports and pop stars. Nevertheless, said Hou Ximin, housing for the needy remains the top priority in China's housing reform.

Back in 1998, the government launched a nationwide programme to help low-income families buy homes. Under the programme, apartments officially rated as "inexpensive but comfortable" were sold for 1,240 yuan (US$150) per square metre in 2001, about 60 per cent of the asking price for apartments sold on the open market. The developers of such housing enjoy reductions in or exemptions from 21 different taxes, with the profit margin limited to no more than 3 per cent.

Families living below the poverty line and in overcrowded homes may apply to local governments for low-rent housing. In Shanghai, 4,820 families occupying living space of fewer than six square metres per person on average applied for low-rent housing from October 2001 to June 2003. Of these, 4,312 had their applications approved and, as a result, their room to manoeuvre increased to 16 square metres per person.

Policy privileges are also extended to families like the Xues in Beijing who have had to give up their old dwellings to facilitate the construction of new housing projects. The family of five was entitled to 90 square metres sold at a "reduced price" of 1,480 yuan (US$180) per square metre. Then, for the extra 38 square metres of space, the family paid 4,500 yuan (US$544) per square metre, at the "price for commercial housing".

Accommodating change in the west

Construction of low-rent housing is a priority in western China where the most needy people live in out-of-date, low-quality homes often without tap water or toilet facilities.

Per capita living space is often less than the national average of 20 square metres in western regions where the underdeveloped economy has reduced living conditions to a much lower level than in central and east China.

The latest official survey shows that per-capita floor space in 21 major cities in the west is only 17 square meters. Poor families in western cities, four per cent of urban residents, dwell in old or unsafe places, such as clay-tempered shelters or old buildings without kitchens and toilets, or simple plank cabins.

The Chinese government would spend one billion yuan (US$120 million) each year on building low-rent homes in western cities or rent subsidies for the poorest families, said Wen Linfeng, an official with the Ministry of Construction.

Three leading western cities, Chengdu, Xi'an and Kunming, had made successful attempts in setting up low-rent systems. Chengdu, capital of Sichuan province in the southwest, last year paid housing benefits to the 580 lowest-income families whose annual earnings were below 6,500 yuan (US$780).

The city planned to extend the benefit to 1,000 more households this year, and had enacted regulations governing the renovation of older and poorer districts with unsafe housing and bad sanitary conditions, said a local public house property bureau official.

In Xi'an, capital of Shaanxi province in the northwest, a total of 264 low-rent apartments, or 14,000 square metres in total floor space, were completed at the end of the last year and have all been rented out.

Li Zhiyong, a laid-off worker in Xi'an, and his family were among the first group of families to move into new apartments.

"The house is better than we have expected, with simple interior decoration, a tiled floor, and a decent toilet. We can finally live a secure life," Li said.

The low-rent system had become an essential part of China's social security systems, together with medical insurance, pensions insurance and the minimum income subsidy, Liu Zhifeng, vice-minister of construction, said.

The implementation of the system in the west would help maintain social stability, promote economic growth in minority regions and ensure progress of the country's Western Development strategy, he noted.

Yet the system was still in its infancy in most western cities, and fund shortages were common, according to Wen. And a large number of urban families still do not have their own homes or sufficient living space in 166 cities of 12 provinces and autonomous regions, Wen added.

Experts suggest that central and local governments should set aside money to guarantee funds to run the system, which should focus on subsidies, with a supply of low-rent housing in reserve as a means to boost rental markets and encourage needy families to seek better homes. (China daily)

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