China property

Thousands in despair after Shanghai’s order on converted apartments

Sudden decision on converted apartments built on land that was originally acquired for commercial or office used, leaves thousands in despair

PUBLISHED : Monday, 05 June, 2017, 8:01am
UPDATED : Monday, 05 June, 2017, 10:50am

The Shanghai government’s sudden decision last month to target converted apartments built on land that was originally acquired for commercial or office use, has left hundred of thousands of buyers in despair and in limbo.

For many non-local residents, such as Yao An, these types of apartment have represented their final hope of owning a home in the city.

As well as not having home purchase restrictions these apartments are affordable as the commercial land on which they have been built, was acquired by developers at a much cheaper price than residential land.

But with the government edict now forcing developers to change more than 100,000 under-development units back to office use – which means doing away with plumbing, kitchens and shared toilets on each floor, as a part of a wider crackdown on property speculation – buyers suddenly find they have spent most of their savings on units which will ultimately be uninhabitable, and be worth a fraction of what they paid.

“I feel so angry,” the 25-year-old said. “These projects have all got government sales permits, we signed purchase contracts and paid the tax – so why is there no property law to protect us? ”

Originally from Anhui province and working at an IT company in Shanghai, Yao and her fiance spent 1.5 million yuan (US$220,000) on a 53-square metre converted flat last December in the city’s Jiading district, putting half down as a payment.

Both were looking forward to having their own home after they were married, but instead she has found out their home has been declared “illegally” bought and it will not be able to house people. The unit’s value has slumped and the banks have refused to offer her a mortgage.

Late last month, Yao joined 2,000 other victims of the government’s sudden change in policy, by protesting outside the reception office of the Shanghai municipal government at People’s Square, demanding the policy be eased on converted apartment blocks that have already been sold.

It still remains unclear how much or when any money will be returned to owners. Or what owners living in such units will have to do to satisfy the new rules.

Tensions and emotions were running high among the crowd. Some said they have not been able to sleep since hearing the news, desperate that all their hard-earned savings will be lost.

Yao added that in her hometown Hefei, the government is still encouraging the sale of converted commercial housing, making her feel very confused.

The tightened conditions on these types of flats in Shanghai seems all the more surprising when you consider that converted apartments contributed over 30 per cent of the city’s home sales in 2016.

The converted-commercial housing market – often referred to in the past as a “regulatory grey zone” – has actually existed in China for more than a decade.

But still, on May 18, the Shanghai housing authorities issued a guideline that called an end to approving any new apartments to be built on land designated for office and shop use.

Shanghai blocks sales of commercial property converted for residential use

What has bemused those buyers most, however, is that it went further, requesting developers convert existing projects back into office use, or they won’t be allowed to deliver them to homebuyers. Those units already being used as homes also fall within the scope of rectification.

Some estimates suggest about 17 million square metres of existing projects will be affected. The average unit size is thought to be about 100 square metres, and roughly 170,000 owners will be affected.

“You cannot take my home, just because the government changed its mind,” said another buyer taking part in the protest at People’s Square, surnamed Wang.

Wang is originally from Hangzhou, and bought her flat in 2015. It was scheduled to be handed over to her in February, but it can’t be delivered now because of the policy change.

You cannot take my home, just because the government changed its mind
Buyer taking part in the recent protest at People’s Square

Apart from anything, she added, surely it is a “waste of resources” to change the flats back into offices, as these flats are mostly built in the suburbs, such as Jiading or Minhang districts, and are very small.

Under current rules, non-local residents are not allowed to buy an ordinary flat in Shanghai, unless they have been employed by a local firm for at least five years.

But new home prices in Shanghai have set record after record, skyrocketing 45 per cent in the past year.

There is huge demand in the city from immigrants and young families, however, with even a modest 100 square metre flat costing about five million yuan, or 50,000 per square metre, compared with the city’s average annual income of US$16,000.

Wang pointed out that the only unit she could ever afford to buy was one built on previous commercial land.

“Even if these developers refund the money to us, home prices have already gone through the roof, leaving it impossible for buyers like me to afford another flat,” she said.

Overall, the personal losses as a result of the policy shift could be potentially huge, but it has also ruined the hopes of many of ever owning their own house in Shanghai.

David Hong, head of research at consultancy China Real Estate Information, said that most converted apartments are bought for self-use.

“It’s a very bizarre policy,” he added, “definitely being fought against the wrong people.”