SOE holds costly residential lot vacant 7 years

Li Xinran
22 March 2010

A high-end river view residential community in the Lujiazui financial area has aroused public concerns not only over its high prices, but also the identity of the developer.

The property arm of the state-owned China National Cereals, Oils and Foodstuffs Import and Export Corp (COFCO) began to sell Ocean One apartments last December and 66 of the first batch of 67 condominiums were sold immediately at an average price of more than 110,000 yuan (US$16,000) per square meter. That’s the highest average for a residential apartment in the city.

All of them have 24-hour butler service and nice views of the Bund and Huangpu River.

Previously, the Thomson Riviera next door was the most expensive residential complex (averaging 100,000 yuan per square meter) and drew frequent criticism as a vivid example of the city’s unrealistically high housing prices.

COFCO Property’s predecessor, Hong Kong-based Top Glory International Holdings Ltd, purchased the use rights of three blocks of land in core Lujiazui in 1996 at a cost of about 4,000 yuan per square meter.

It was not until 2003 that the developer mapped out the plan for the Ocean One, with five buildings, and construction was completed two years later in 2005.

From purchase in 1996 to developing a construction plan in 2003, a period of seven years, the land was unused – far beyond the maximum two years stipulated by law that land can lie vacant. The purpose of the short, two-year period, is to prevent developers for sitting on vacant land and allowing property prices to rise.

However, Xue Jianxiong, a research fellow with E-House (China) Holdings Ltd, which helps sell Ocean One apartments, denied any violation of law on the part of COFCO Property, but did not elaborate.

Min Wei, a lawyer with Shanghai-based Shenyang Law Firm, said that an extension was legal at that time because the developer had applied for more time before the two-year period expired. The central government has tightened rules on the time property can lie vacant.

But as a state-owned company, shouldn’t it shy away from the capitalist concept of maximizing profit at whatever cost, when the central government vows to curb runaway housing prices.

COFCO is not alone. Up till now, more than 70 percent of 128 central government-owned enterprises, many of which are not specialized real estate developers at all, have invested in the red hot real estate market.

More often than not, these companies helped bid up land prices to incredibly high levels, thwarting any effort to bring the country’s soaring housing prices down to reasonable levels.

Last Thursday a spokesman from the State-owned Assets Supervision and Administration Commission said 78 central-government-owned companies whose main business is not real estate had invested in the real estate market, but he also said they would have to gradually withdraw.

Good news. But one question remains: will the other 16 central-government-owned companies around the country, whose main business IS real estate, continue to bid up land prices at whatever cost at a time when most people cannot afford even a humble flat?

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