Research Proposal: Real Estate Markets on Shenzhen and Beijing

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¶ … Real Estate Markets on Shenzhen and Beijing: Overview of the Development and Analysis of Problems

With the rise of the Chinese economy, the face of real estate in its many cities is changing dramatically. Yet, research shows that these changes are not uniform, and differ greatly depending on the area based on prime factors, such as government involvement in the market and the level of foreign investment. How much influence does foreign investment have within China's recently proven unstable real estate market? This research aims to explore that within the context of two specific cities: Beijing and Shenzhen.

The Chinese government has been trying to construct housing units all over China to be sold as commodities. The government is doing this to help lighten the load on the Communist state (Li 2000). Since reforms began in 1988, the government has allowed more freedom of choice in buying houses in order to raise a potentially strong real estate market to help inflate government budgets. According to research "It aims to introduces market mechanisms to a heavily subsidized housing system and to transform housing from a welfare good to a commodity," (Huang & Clark 2001:7). Prior to these reforms, the Communist government allocated individual housing based on employment profession. This trend began in 1956 when "the state began to control private rental housing regarding allocation, rent standards, maintenance and management, while most landlords remained nominal owners who received rent from the state instead from tenants," (Huang & Clark 2001:10). With the state owning the bulk of the real estate market, acquisition of real estate was basically out of the picture. Thus, the real estate market in China became one of a leasing market, where individuals leased tenant housing from the government itself; "In the early 1950s, China had outlawed its real estate industry and privately owned housing was not encouraged, so the main urban housing market is the housing leasing market," (Logan 2002:206). Yet, the reforms of the late 1980s brought many changes to the market with the allowance of a separate real estate market and the encouragement of homeownership in its urban areas. According to research, "now there is a mix of public and of private housing," (Huang & Clark 2001:10). This change comes during a time where the average Chinese are making more money that ever before (Tomba 2004:3). Over the last few years, the middle class has been earning much more than past generations, giving more spending power to the Chinese public. However, this transition is not a completely hands off move on behalf of the government. The government has been adjusting the price in their strict regulation of real estate in areas like Beijing and Shenzhen (Danwei 2007). In addition to the continued control of the government, which is higher in some areas than others, "China is less familiar with marketing principles and lacks a completely legal, financial framework for the successful operation of the housing market," (Zhang 2001:164). Thus government control does not mean regulation of prices, but rather regulation of who gets what. This has presented an unstable market. The presence of foreign investment is what has helped some areas, like Southern coastal China, perform better in its real estates market (Jiang et al. 1998). Yet, with a lack of experience, the government and real estate professionals have caused huge fluctuations within the market that have skyrocketed prices in recent years.

2.1 Prior Research

Looking at Beijing's market, prior research has discovered influences on the cost of housing and the nature of real estate itself. Beijing holds many foreign-investor companies, just as Shenzhen (Logan 2002). Yet, this are proves more traditional. Prior research has found lots of emphasis on seniority in Beijing (Li 2000). Previous study proves that Beijing is a very traditional area, and so there are few commodity houses available on the market. This is mainly due to the small size of the growing market (Li 2000). However, it is an area that is still heavily dominated by government control of the real estate markets. For instance, the two large gated communities in Hopetown were developed by central authority. Thus, "the planning of the whole area is influenced by the directives of the city planners. The housing-project developer of its two enormous gated communities is one of the largest state-owned construction corporations in the country," (Tomba 2004:2). Beijing proves a very segregated city, which can have a serious impact on the real estate market in specific areas of the city. This is based on the involvement of government control, which segregate residential areas based on income and employment status around the city (Tomba 2004). Housing sold to individuals was only at around 40% of the total market in 1997 (Logan 2002). Recently, the government has been relaxing its grip over the real estate market; "In order to attract investment or boost the housing market, some cities, such as Beijing, Shanghai, and Guangzhou, issue a certain number of special household registrations -- blue hukou -- to people who can either invest a large sum of capitol or/and buy a unit of commodity housing with certain criteria (such as size)," (Huang & Clark 2001:27). In Beijing, workers have to shell out around twice their annual income for appropriate housing. In comparison to the extreme costs of the market in Shenzhen, this makes Beijing housing look much more affordable. There is also segmented housing market in Beijing, another feature of stricter government controls (Li 2000). Beijing houses workers within its innovative technical industries; "The new hi-tech area needs concentrated modern information services, and tends to centralize and develop such services," (Logan 2002:43). To serve this middle to high class professional group, commodity houses were constructed around the city. Commodity housing in Beijing includes gated communities, so that residents "enjoy housing that is not much different from that in suburban North American cities," (Huang 2993:595). There are more permanent residents in Beijing than other coastal cities like Shenzhen. Thus, there are discounts on housing costs are given to workers who have years with the same job, "In Beijing the discount ranged from 0.6% to 0.9% for every year of service," (Huang 2003:597). Most of the lower class workers who reside in the city are not temporary, like in the case of Shenzhen, and so settle into small enclaves around the city. According to research, "In Beijing, for example, migrants from the same rural areas tend to cluster into 'migrant enclaves,' while other cities like Shanghai the distribution of rural immigrants is more dispersed," (Logan 2002:165). There are more than 100 of these separate "enclaves" throughout Beijing.

On the other hand, Shenzhen witnesses lesser government controls, with much higher rates of foreign presence in the real estate market. Shenzhen is also a hub of foreign business, like Beijing (Logan 2002). However, in Shenzhen, foreign investors invest in not only business ventures, but also real estate. It is a relatively new city, "the newly established city of millions, created as an experiment in international trade and investment," (Logan 2002:10). Housing is sold to individual buyers was at 91% of the newly established market, a much larger percentage than seen in the case of Shenzhen (Logan 2002). This is primarily based on the presence of more foreign buyers in the real estate market, a factor which is also driving prices higher and higher in the area. Real estate prices in Shenzhen increase by 50% between 2006 to 2007 (Danwei 2007). According to recent accounts, "Shenzhen has been going through an unprecedented real estate boom during the last 18 months; average housing prices have risen from 7,000 yuan per square meter to 16,000 yuan today," (Danwei 2007). The large portion of foreign buyers in the real estate market also comes from the nature of the native Chinese living in the area. Most are temporary workers, and according to research, "Of the 3.8 million population in Shenzhen in 1997, for instance, 2.7 million or over two-thirds of the total lived and worked there on a temporary basis," (Logan 2002:vi). In fact, the average age of the Shenzhen citizen was only around 25 years old (Logan 2002:vi). The city itself lies on the southeast coast, so real estate prices tend to be high based on proximity to valuable resources and ports (Logan 2002). Research suggests that "Housing prices in large and coastal cities are much higher than the average," (Zhang 2001:165). Many Chinese couldn't afford such high prices. This is where the foreign investors came in, "This led to a strange phenomenon that many commercial housing units in coastal cities were targeted to be sold to overseas Chinese and foreigners, which made the housing market vulnerable to overseas influences," (Zhang 2001:165). This influx of foreign buyers has been the main driver in the real estate market of Shenzhen. In fact, "it is the foreign investment that is making the real estate industry in Shanghai perform well, despite the government's tight monetary policy and the contraction of the industry in other parts of… [END OF PREVIEW]

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