Home ownership rates in China and the different ownership titles

Implications: In 2002 it was announced that Chinese rates of home ownership had reached 80%, this was repeated recently by The Economist newspaper in passing. Deeper analysis reveals that this is not all that it seems.

Analysis:  If anyone had asked me a week ago what home ownership rates in China I would have made a half educated guess of 40 to 60%, let’s say 60% in Shanghai, Shenzhen and Guangzhou and half that or lower for other cities. So when The Economist recently mentioned in passing that home ownership among China’s urban households was 80% I nearly fell off my chair. Could this really be true and how could my half educated guess be so far wide of the mark?

In global terms 80% home ownership is extraordinarily high. According to the London Times (http://www.timesonline.co.uk/tol/news/politics/article1567419.ece) only 70% of UK households own their own home on the other hand the European Foundation for the Improvement of Living and Working Conditions (Eurofound) says that the EU states of Estonia, Hungary, Lithuania, Slovakia, Slovenia, Bulgaria and Romania all have home ownership rates of over 80%, the highest rates in the EU. Mass privatisation of housing in formerly and currently (with Chinese characteristics) communist States the quick explanation then, or…?

The most likely source of the 80% figure, it seems, comes from a statement from the Ministry of Construction, as reported by Xinhua, which actually states that 4 out of 5 urbanites (not households) own their own home and 94% own some kind of accommodation. If that was not enough, this report is not dated 2007, it actually dates back to August 2002 (http://www.asiamarketresearch.com/news/000200.htm) and (http://english.peopledaily.com.cn/200208/09/eng20020809_101182.shtml). I quote ‘between the mid 1990’s and 2002 80% of China’s public housing was sold to local residents’. Sale of 80% of public housing does indeed translate into 80% home ownership among the same group of people. Assuming the equivalent figure is even higher today, this gives China one of the highest rates of home ownership in the world. All news to me.

A crucial breakthrough in my clarification of what this might really mean in my Google assisted research came in an excellent paper published by no less august institution than the Joint Centre for Housing Studies at Harvard University http://www.jchs.harvard.edu/publications/international/w05-7.pdf, dated July 2005. This paper confirms my understanding of the difference between fully transferable property rights that come with commodity housing (shangpin fang) and usage rights (shiyongquan). For the latter the rights are inheritable but there are restrictions on other forms of transfer including paying back to the work unit (danwei) from which they originally came, ownership of a sort then but probably not really in quite the way that I suspect The Economist thought. Nice to have Havard to back me up.

Bear in mind that the same 2002 report states that ‘67% of the people who had bought public homes wanted to improve their living conditions by purchasing new homes or exchanging houses’ but their ability to do so is restricted. Those that own usage rights find they have to pay a premium to sell, again this matches my experience in trying to manage transactions of old houses in Shanghai under multiple occupancy which apart from anything else require payment of a land premium (budijia) to be able to convert use right ‘ownership’ in the form of a brown book into a saleable title, green book.

I don’t know anything about ownership rights in eastern Europe and I don’t intend to use up the rest of my weekend finding out, but in the PRC it seems that ‘home ownership’ is not quite what the term might suggest. So back to the Economist and the question of 80% home ownership among urban households. Having sought truth from facts, I cannot say that they got it wrong but let us diplomatically assume that of that 80% half is usage rights and half is commodity housing with fully transferable title. This allows us both to be more or less correct and let us furthermore forget my assumption that the 80% figure is 5 years out of date. The assertion that this figure had been put to use on was that a property market crash would be ‘much nastier for China’s economy than a share-price crash’. Given the complexity of real estate ownership rights in China it is very difficult to draw any real conclusions from the 80% home ownership figure and given my forecast for Shanghai commodity property prices to double over the next 5 years or so property should be OK for now. Stock Markets on the other hand have been known to crash during economic boom times.

The true significance of this is that we lack quality statistics with which to accurately measure home ownership, price increases etc and that policies are being drawn up without a clear picture of the real situation. The result is that new taxes, slowing land sales, delayed development approvals, tighter credit etc is all inexorably contributing to hitting my 100% in 5 years forecast.