Since 1978, these 30 years have been an era of rapid change for China as well as its real estate industry which has grown from non-existence to accounting for 11% of GDP and 60% of tax revenues in some municipalities. The speed and scale of change and wealth creation along the way is unprecedented, and is the result of a strong, deliberate public policy aiming at modernizing China.
I was invited to participate on a panel at the Urban Land Institute 2011 Fall Meeting discussing real estate development in China with K. B. Albert Chan (Director, Shui On Development Limited), Adam Yu Chikeung (Chairman, Beijing Winland Real Estate Co., Ltd), and Ronald A. Altoon (Partner, Altoon & Porter Architects, LLP).
Although my work here at SWA is predominantly in China during last 3 years, as an urban designer and landscape architect, I have been exposed to the development process mainly from the perspective of a designer. How do I structure a meaningful conversation with the audience mostly American developers? So in the final days leading up to the panel discussion, I happened to be traveling through China for work and I set out to expand my understanding of Chinese real estate development.
If SWA’s work history in China is an indication, the pace of development in this nation is increasing rapidly and doesn’t show any sign of slowing down. SWA began working in China in 1994, we’ve worked on 432 projects in more than 100 Chinese cities. More than 30% of this work has been done in 2011 alone, with 189 projects since the year began and 41 just since July.
Not only is there a rapid increase in new projects, but the pace of the project development cycle is also much faster than in the US. In 2007 total 2,040 million m2 gross floor space of buildings were completed in China. Construction usually begins before our design is complete. This is especially evident by the length and intensity of workdays worked in China. In the six days of my last trip to China, I traveled to Beijing, Peony River City, and Nanjing. My days began at 5am and ended at midnight with waking up in a different city every morning.
More than 35% of the 125 cities with more than 1 million residents are in China, according to the book Asia Beyond Growth (ORO editions, 2010). This is a direct result of the country’s drive for modernization around industry, defense, agriculture and science starting with Mao’s successor Deng Xiaoping in 1978. Since then, there has been a steady decrease in rural populations and increase in urban populations to supply the labor force for the nation’s industries. In 1990, less than 20% of the country’s residents, 191 million people, lived in China’s urban areas. This number grew to 502 million, more than 45%, by 2008 and this trend is projected to continue. By 2020, 60% of China’s population will live in cities. The economic spill-over of this growth: every 1% increase in the urban population feeds a 5% increase in consumption of construction and other raw materials.
Accompanying China’s modernization ambitions were a series of land reform decisions that have dramatically transformed how China’s urban landscape is developed – and the wealth of property owners. Beginning in 1982 as a part of Deng Xiaoping’s initiation of the “Socialist Market Economy”, the Fourth Constitution of the People’s Republic of China satisfied the interests of the majority of population (peasants) by giving the agriculture land to the collective ownership of its workers. The State maintained its grip on the urban land and its attached commercial value. That is until 1986, when the “Land Law” introduced the concept of the “right of use” for properties. By the next year, some cities began experimenting with trading these rights-of-use and gave birth to China’s real estate market. These trades were permitted between private citizens and businesses nation-wide in 1990. Within the first year of “rights of use” trading, 3700 authorized developers were in operation.
The market advanced again in 1998 when the government put an end to free social housing and began selling housing at steep discounts to residents. The rate of home ownership took off. By mid 2009 the share of real estate in the scope the total investment was 25% (up from 4% in the early 1990’s).
Today, the Chinese government is trying to balance the conflicting needs – protect agriculture lands needed to nourish the nation and import the necessary labor for continued industrial growth. So, to monitor this growth, developers are required to go through many levels of authorities – and each one has the authority to stop it completely. As a result lobbying at all levels has become essential for developers working in China, which makes it a highly localized industry and very difficult for foreign developers to break into.
Like many others of my generation, growing up in free social housing, we witnessed our parents’ owning their first home with deep discount from the State and many friends’ becoming millionaires through souring real estate investments. Since 1978, these 30 years have been an era of rapid change for China as well as its real estate industry which has grown from non-existence to accounting for 11% of GDP and 60% of tax revenues in some municipalities. The speed and scale of change and wealth creation along the way is unprecedented, and is the result of a strong, deliberate public policy aiming at modernizing China.
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