Ministry urges end to bare shell flats

PUBLISHED : Wednesday, 13 August, 2008, 12:00am
UPDATED : Wednesday, 13 August, 2008, 12:00am

The Ministry of Housing and Urban-Rural Development has urged local governments to lift building standards in their jurisdictions and phase out the practice by developers of selling 'bare shell' flats.

About 50 per cent of all new flats on the mainland are bare shell units, though the percentage may vary between cities and projects, according to Michael Choi Ngai-min, the chairman of property agency and consultancy Land Power International.

That means the units are often offered for sale without toilets or washbasins, and with untiled floors and unpainted walls.

To raise the quality of the country's housing stock, the ministry issued a circular last month urging local governments to introduce rules and policies designed to gradually stop the sale of such unfinished units.

'It is a measure aimed at improving building quality in line with the long-term goal of the government and also in line with the stage of development of China's property market,' said Lee Hing-yin, the director for research and consultancy for east China at Colliers International.

Anton Eilers, the executive director for CB Richard Ellis residential in China, said: 'Buyers are raising their expectations and beginning to insist on improved building quality. They also want their flats ready for occupation as soon as possible.

'If you move into a development that has been sold in a bare shell condition, within two to three years there would be renovation going on and this would create quite a messy living environment.'

In addition to raising the quality of life in new developments, a practice of bringing finished projects to the market would reduce wastage and costs, added analysts, because developers would enjoy economies of scale not available to individual renovators.

Mr Eilers said it could also lead to a more stable and less speculative market.

Many second-home buyers on the mainland have approached property as a speculative investment, eyeing potential capital gains from a quick resale, rather than holding the unit for its long-term rental yield. This approach meant they often left their units unoccupied and unfinished since they had no personal stake in making improvements.

The result was a misallocation of resources, Mr Eilers said.

If developers were forced to bring finished units to the market this could help change buyer attitudes and raise occupancy levels in developments - either by homeowners or tenants, since the finished units could more easily be leased.

The need for low-rental homes catering for the mainland's huge low-income earners was a pressing issue and more needed to be done to promote this market.

'If developers moved away from handing over bare shell units [investor-owners] would be able to put their properties on the market for rental, which is not the case now,' Mr Eilers said.

In addition, building safety and quality can be raised when the basic renovation work is done on flat delivery, because qualified contractors will be appointed for the work.

In its circular, the ministry also said renovation work should be more closely monitored by local government inspectors because illegal and sub-standard renovation could cause structural damage and endanger the lives of residents - such as occurred in the Sichuan earthquake in May.

Some analysts believed that though construction costs would be raised by any move by local governments to enforce the new ministry guidelines, this would have a minimal effect on final prices since the work involved would account for only a small part of the final cost of a unit.

In addition, buyers could then take delivery of a finished unit and fund the purchase through a single mortgage, rather than having to raise a second loan to complete renovations, Mr Choi said.