Perverse equation of rehousing is driving up prices

On the mainland, forced evictions and demolitions to make way for lucrative housing or commercial projects have led to protests, riots and deaths.

But some experts say the rising cost of resettlement compensation is one of the causes of rapidly rising house prices.

In a bid to boost their revenues and gross domestic product figures - essential for political advancement - local government officials in remote areas aggressively redevelop old housing and farmland into higher-value private housing estates.

In many cases, that involves government officials taking bribes and abusing their power to illegally force evictions and demolitions.

But in other cases, the resettlements are done legally, with developers or local governments paying compensation to those who are resettled. And as land and housing prices have risen during the property boom, so have compensation payments. This, in turn, has increased the purchasing power of those who were relocated, creating stronger demand in the private housing market.

Resettlement compensation is the biggest transfer of wealth from the government to the household sector since the privatisation of low-cost public housing about a decade ago, according to independent economist Andy Xie.

The overwhelming majority of end-user purchases probably came from resettled residents who used their compensation cash for down payments, he said.

Shanghai driver Ma Weifu is a good example.

Ma said people are always surprised when he tells them he owns a three-storey house in Shanghai - one of the most expensive cities on the mainland.

'Even I, myself, sometimes cannot believe that this is real,' the 48-year-old driver for a United States company said.

He recalls the difficult living conditions he and the rest of his eight-member family endured, squeezed into a 23-square-metre flat in the late 1980s.

'I - together with seven family members, including grandma, my parents, my elder sister, my elder brother, his wife and his son - was packed in a 23-square-metre attic,' Ma said. 'The place was very small.

'We did not have a toilet in the house. We used chamber pots, which were taken to collection centres at the end of the street every day.'

Then a builder bought the site for a private housing development. The government resettled Ma, his wife, his son and his mother to a flat in Pudong with a gross floor area of 58 sq metres.

According to the resettlement policy, each person at that time was entitled to five square metres of net floor area for free.

Children are automatically counted as two people for allocation purposes, regardless of the number in a family, Ma said, so they were entitled to 25 sq metres in net floor space.

But with kitchen, toilet and living room space, Ma's new flat was about 56 sq metres in gross floor area.

'We were entitled to a 56-square-metre unit in gross floor area for free. I paid 500 yuan (HK$570) per square metre to buy two extra square metres. So what I needed to pay was 1,000 yuan,' he said. These were much better living conditions.

The flat had two bedrooms and a flush toilet. The Ma family lived there for about a decade before selling it and gaining about 460,000 yuan.

Ma used the money for the down payment on his new house in the private housing market.

'I paid 1.09 million yuan for the purchase of this [300 sq metre] house after I sold my previous home for 460,000 yuan,' he said.

Ma now has a new strategy to take advantage of the resettlement compensation policy in the future.

'I have asked my wife and my son to change their hukou [household registrations] to my in-laws' 47.5 square metre home on Pudong Boulevard in Huangpu district, in the downtown of the city,' Ma said.

'My wife's sister and her son also changed their household registrations to there. We are now betting that the government will at least compensate us with two flats once their home is demolished,' he said.

Hukou is a household registration system that determines where a mainland citizen is allowed to live and work in a city.

Resettlement compensation is paid according to where the residential permit is registered.

Ma said his ploy was not illegal.

To avoid abuse of the resettlement policy, Shanghai's municipal government has stipulated that hukou holders registered in resettled areas for less than two years will be ineligible for compensation.

'My in-laws have lived there since the 1970s. The property is very old. Sooner or later it will be demolished,' he said. It was in a prime location, and the compensation was expected to be over 20,000 yuan per square metre, he said.

'I heard someone used this method and it worked. So now we will try it, too,' he said.

Ma's case supports economist Xie's contention that resettlement compensation is one of the drivers of the country's real estate boom.

'Local governments increase resettlement payouts to avoid social conflict,' Xie said. 'They raise land prices to pay for it. It drives up property prices and increases resettlement compensation expectations. The cycle continues.'

In Beijing, Li Jie and his wife are now bargaining for better compensation from the mainland builder who wants to redevelop the housing estate where they live.

The couple are asking for two flats - one for their own use and one to rent out - as compensation for moving out of their 50 square metre home in Chui Yang Liu Lane, near the popular private housing development R&F City, in Chaoyang district.

'Many people like us are asking for two units in the new project,' he said. 'The rental income could support our daily expenditure.'

Otherwise, he said, they will refuse to move out.

Compensation discussions began two years ago, when the local developer, Teng Qi Real Estate Development, wanted to redevelop the housing estate and offered residents two options to move: one-off compensation or a similar-sized unit in the new project.

The developer also agreed to pay the moving expenses and rent during the three-year construction period.

But only 30 of the 4,300 households involved have been willing to move in the last two years.

Li said the one-off compensation was not enough for them to buy a similar flat in the area. The developer rejected their request for two flats, and a new round of meetings will be held in July.

Despite the generous payouts being offered, there are also many homeowners who care more about staying in their homes than they do about compensation.

For years, the authorities have been asking Beijing store owner Si Yatou and his family to resettle. Si is reluctant to give up his 13 square metre house, even though the local government has offered him a bigger and newer home.

Si operates a small store, selling soft drinks and snacks from the front of his house and living at the back with his wife and son.

It is located in the city centre near popular tourist attractions. The government has decided to demolish the shanty houses and build siheyuan, or courtyard homes, to bring more tourists. A new subway line is planned.

A courtyard home is a traditional type of residence that was commonly found throughout China, most famously in Beijing. The name literally means a courtyard surrounded by four buildings.

'The government approached me to resettle in 2001,' Si said. 'They offered me a house within the Third Ring Road area. But I want to stay in the First Ring Road area.

'I don't want to move, if I have a choice,' Si said, struggling to control his emotions. 'It is a place my family has lived in for three generations. Most of my neighbours and old friends have moved out already.'

The adjacent houses have already been knocked down.

Li Qingyun, a professor at Peking University, said resettlements have caused two distinct problems.

In many areas, increased land prices have pushed up housing prices, which have increased resettlement costs. But in other places, residents are forced legally or illegally by local governments and well-connected developers to move out.

Last year, a government official in the Baixia district of Nanning city, Guangxi , was sentenced to 11 years and six months in jail after he accepted a bribe of 1.1 million yuan during a resettlement project in early 2000. The bribe was paid by two parties - the developer, who wanted to speed up the resettlement, and a restaurant owner, who was asked to move out and hoped the official would pay him more compensation.

Earlier this year, a 92-year-old man and his 68-year-old son set themselves on fire trying to stop the family's pig farm from being demolished by the local government in Lianyungang in Jiangsu province. The son died, while the father suffered severe burns. The farm was levelled.

In another case, the government of Guangping county in Hebei's Handan city planned a massive redevelopment, which included removing old houses, building new streets and tourist facilities.

In March, 1,000 urban and rural houses were demolished. Some residents complained they had not received any demolition notices from the government, while others said they received them only after their houses were torn down.

Beijing has started to take notice. Last month, the State Council issued an urgent notice to governments at all levels, telling them to create new compensation standards for land requisitions before next month.

The Regulation on Urban Housing Demolition, introduced in 2001, has been criticised for not providing sufficient protection for property owners' rights. In 2007, Beijing brought in a Property Law stating that a citizen's private property is inviolable - governments should only be able to confiscate someone's home for public welfare construction - and compensation must be paid before relocation.

In addition, the State Council is moving to revise the urban housing demolition regulation to better protect owners' rights and to ensure they are fairly compensated.

Li of Peking University said many of the resettlement problems could ease when home prices decline. This would cause resettlement compensation costs to drop, and developers and local governments would likely be less aggressive about redevelopment, he said.