Vanity for promotion distorts realty markets

A bird's-eye view of Zhengzhou city, Central China's Henan province, which is seeing an increase in air pollution due to the large-scale construction the city is undergoing, July 29, 2015. [Photo/CFP]

A BEIJING-BASED DEVELOPER was recently forced to abandon its plan to expand into Zhengzhou, the capital of Central China's Henan province, as its successful bid for the land in the city was later nullified by the local land and resources bureau. China Youth Daily commented on Wednesday:

With a focus on developing high-end properties, the Beijing company "stirred up" the local market and more importantly, broke certain hidden rules embedded in the local companies' "home field advantages".

In other words, albeit auctioned, the land that the Beijing company attempted to bid for in Zhengzhou was actually unavailable, because it was part of an urban renovation project earmarked for local real estate developers.

Despite their great ambitions in urban renovations, some local governments do not have enough money to cover the costs of demolition and the relocation of residents, and often turn to the developers to bear the costs by making early promises. As a result, many property developers are involved in a relocation project even in the planning stage.

In Zhengzhou, to buy such land, property developers reportedly start working on issues, such as those involving the building of apartments for the relocation of residents, about three years before they actually purchase the land. This could involve an outlay of around 1 billion yuan ($145 million), but it basically guarantees that the developers are offered the land they want as well as some compensation by the local authorities.

Thus the highest bidder will not necessarily get the land if other competitors already have a huge stake in it.

That may explain why the Beijing property developer's successful bid for the land in Zhengzhou was later nullified by the local land and resources bureau.

Governments at all levels should not use renovation projects, which are designed to improve citizens' well-being, as vanity projects, especially when they cannot afford the costs.