Saturday, June 29, 1996

40 Percent of China’s New House Prices Paid as Kickbacks

40 Percent of China’s New House Prices Paid as Kickbacks

JUNE 26, 2007 03:16

Although housing prices are soaring annually in China, the Chinese government does not even have official statistics on construction costs.

In protest of the sky-rocketing housing prices, middle-income Chinese even launched a so-called “Don’t Buy Houses Campaign.” However, despite their efforts, housing prices in 70 major cities in China jumped by 6.2 percent last year and, yet, another 6.0 percent in the first quarter of the year. In particular, some of the well-developed cities such as Beijing have been suffering from an annual housing price hike of over 10 percent over the past several years.

Meanwhile, a real estate developer disclosed the costs of building apartments in some cities in China. “Twenty percent of the price tag is the actual cost spent for building apartments. Forty percent is for the profits to the developers and the remaining 40 percent goes to the pockets of related government bodies,” said the local developer, who has been involved in the construction industry since 1992.

He claims that the 40 percent is spent to bribe concerned government officials. He calls this vicious cycle, “The Food Chain of the Gray Industry.”

“When I worked in the Pearl River Delta and Yunnan in 1992, the cost of building apartments was 350 to 400 yuan per square meter. Although 15 years has passed, construction cost remains at about 450 to 600 yuan. However, the prices of houses which used to cost only 1,000 to 1,500 yuan have gone up several times,” he added.

He says that housing prices in major cities like Nanning, Guiyang, and Chengdu where housing prices were about 600 to 700 yuan per square meters in 1990s, have become 4,000 to 8,000 yuan, almost 10 times more expensive.

“If you want to develop a real-estate, you have to share profits with officials of various government bodies related to licensing, planning, auctions and securing lands,” he added. “Although the price of a 40-story building should be cheaper per square meter compared to that of a 20-story building, it is more expensive due to the problem,” the real estate developer said.

“Profits for developers remain only at about 10 percent of new apartment prices in advanced countries. Such food-chain of China is what prevents 70 percent of city residents from purchasing a house,” he said.