University dorms prove a lucrative real estate sector

PUBLISHED : Monday, 04 June, 2001, 12:00am
UPDATED : Monday, 04 June, 2001, 12:00am

Universities on the mainland need 5.7 billion yuan (US$677 million) for student dormitories. This may be good news to real estate firms, but the high costs of development may keep them from getting the go-ahead from the university's bursar's office.


Chinese universities relied on the government budget in the past for new dormitories, dining halls, laboratories, and teaching buildings. Then, in 1999, to get out from under this financial burden, the State Council decided to turn the sector into an independent entity.


It decided to get funds from the public sector within three years, according to China Real Estate News and it placed the student dormitories at the top of its agenda.


The State Council has preferential policies like low-interest loans for land used for student residences and other facilities. The government will cover the cost of renovating old campus facilities and water and power supplies, most of which date back to the 1950s.


China's university enrolments have been increasing by 30 per cent annually, and schools in the wealthier cities have been building spacious flats with modern bathrooms and balconies.


But, if each student were to have 6.5 square metres of space, universities nationwide would need 5.78 million square metres of new floor space. That would mean an investment of at least 5.7 billion yuan (at a cost of 1,000 yuan per square metre), China Real Estate News has quoted the Education Ministry as saying.


When enrolment increases and telephone and Internet access in dorms are added in, both the floor space and investment needed go up immensely, local analysts have said.


Peng Cong, a student at Beijing University of Aeronautics and Astronautics, describes his ideal future dorm like this: 'It [would be] great having a room with three friends; you can browse the Internet at any time with no worry of power cuts, and you have a sitting room for receiving guests.'' Peng is now sharing a 16-sqm dorm room with seven others. They've barely managed to make room for a computer table.


Peng's dream is expected to come true when Beijing adds 500,000 square metres of student flats and starts work on another 500,000 square metres this year, according to Beijing Evening News.


Shanghai's universities began reforms in the sector, in 1999. The local government offered low-interest loans and tax exemptions for developers to keep costs down. In this way, loans can be paid off in 10 to 12 years, and developers can get a share of profits in 12 to 15 years. After 15 years, the universities will be sole owner of the flats.


This has prompted the Shanghai Greenland Group to put 20 million yuan into 18,000 square metres of student flats at East China Normal University, China Real Estate News reports. The school will own the property and repay the cost by using student room fees.


But it's not all that easy reaching an agreement. The Tsinghua University, which has 17,000 students, has said that developers' costs are too high. Because an agreement couldn't be reached, the school will build the dorms with bank loans, a university spokesman told SCMP.com. But it may use estate agents for the property management, he added.


Beijing University of Posts and Telecommunications, which plans to increase enrolments by 50 per cent this year, can't reach an agreement with real estate developers either, SCMP.com has learned. 'We'll raise the money ourselves or ask for bank loans,'' one official said. The university will rent 400 graduate student dorm rooms at the 21st Universiade village, after the games end in September, he said.
But many doubt the universities' ability to go it alone, because they lack experience in both construction and property management.


Meanwhile, commercial banks have shown more interest in universities than in loss-making state-owned enterprises, because the former have stable state financial support. They also have a large amount of funding from tuition, scientific research, and listed companies. Peking University, alone, has a credit line of about 10 billion yuan, according to state media.


On-campus housing purchases by teachers will also bring opportunities for property developers.


The Chinese government stopped the practice of distributing housing, in 1998, and since then, university teachers have joined civil servants in having to pay for their own housing. But, financiers don't worry about their ability to pay, because teachers now get more from funds earmarked for teaching and scientific research, China Real Estate News says.


Teachers will also need property managers to help create a safe and secluded environment in the residential area, the newspaper said.