June 19, 2010 3:00 am

Property boom stokes corruption in China

China's push to build cheap housing for low-income families is being undermined by some local governments that are using the policy as a front to provide public officials with sweetheart property deals.

In Xinzhou, an industrial town in central Shanxi province's coal belt, a new complex of smart apartments called Century Garden was on the local government's list of designated social housing.

Instead, almost all the 1,578 apartments have been reserved for local officials, some of whom have already resold the apartments at considerable profits before construction is completed.

The Xinzhou case is one of a string of revelations about cut-price flats for local officials that have emerged just as Beijing is ramping up its plans to build social housing.

The scandals are becoming the latest flashpoint in the combustible politics of China's housing boom, which has transformed the living conditions of tens of millions in the past decade but which is increasingly creating a disaffected rump of citizens left out of the real estate bonanza .

"You are never going to get rich if you do not do anything illegal," says Wang Zhu, a 60-year-old former policeman who has a three-room, brick house across the road from Century Garden in Xinzhou and runs a small flower shop.

Social housing has become one of the Chinese government's main priorities, including the promise to build 5.8m apartments for low-income families this year. The goal is to reduce social tensions surrounding the rapid rise in house prices, while ensuring that the clampdown on property speculation does not cause a collapse in real estate construction, one of the main drivers of growth.

The shortage of cheap housing in Chinese cities is connected to a number of other prominent social problems - it is one reason workers at manufacturers such as Foxconn, which has been rocked by a string of suicides in the past two months, live in cramped company dormitories .

Government jobs have often provided access to subsidised housing, especially in Beijing. However, critics claim that the social housing policy has in some cases become an excuse for local officials to game the booming market.

"A lot of the social housing has ended up going to public servants," says Hu Xingdou, an economist at the Beijing Institute of Technology. "It is a sort of invisible corruption. The policy has become a channel for officials to grab public resources."

In Rizhao, a city in eastern Shandong province, a complex of 3,500 apartments designated as social housing, some with sea views, was sold to local officials at prices 30-50 per cent below market values. In Meixian, in the central Shaanxi province, around 80 per cent of the city's first social housing development, called Urban Beautiful Scenery, went to local officials.

"We are quite sceptical about the prospect for subsidised housing," says Michael Klibaner, head of China research at property group Jones Lang LaSalle. "There is not much transparency about the plans for affordable housing."

Under Beijing's instructions, if local governments want to allocate new land to residential housing, they must ensure a significant proportion goes to projects for affordable apartments, which can charge lower prices because they are usually exempt from certain land use fees. In some cities, developers say the new rules and pressure from Beijing have forced them to build more cheaper and smaller flats.

However, in Xinzhou the local government has admitted that the Century Garden project should not have been part of the quota of affordable housing and has set up a special inquiry.

Prof Hu and other critics argue that local governments should dramatically step up efforts to build public housing for rent, rather than relying on rules that encourage private developers to build cheaper flats. According to Citigroup, only 4.4 per cent of investment in real estate last year went to social housing, falling to 3 per cent in the first four months of this year.

Additional reporting by Zhao Xue

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