Cooperative housing scheme resurrected in Beijing

Yu Linggang shook his head when he heard about a new plan to circumvent developers by having individuals contribute to a cooperative housing scheme in Beijing.

"I tried that, and I know some of their policies won't work. They will be confronting many challenges and I hope they are prepared for that," Yu told the Global Times.

Yu, 39, who works as an engineer in Lenovo China, was the first person in Beijing to advocate collectively building an apartment block amid the housing price surge in 2003, in an effort to lower housing prices by avoiding paying for the high profit margins typically reaped by developers.

But Yu's plan fell apart. Several years later, 39-year-old Sun Zhiqun is now revisiting the plan.

"The scheme, if successful, will give participants a price that is 30-40 percent lower than buying commercial residential housing," Sun told the media at the news conference on July 11, echoing the lines that Yu told potential participants in the past.

In China, property developers are the only suppliers of commercial flats, aside from government housing projects. This plan aims to change that.

"The scheme can be simply summed up in one line: let's be the developers by ourselves," Yu said. "However, bringing so many strangers together to accomplish one task is also harder than you think and buying land is easier said than done in China."

A lack of trust

In 2005, everything was well prepared and Yu was confident that his group of 400 participants would get a parcel of land in Shaoyaoju, on Beijing's North Fourth Ring Road. But he did not expect that one week before the bidding started, he would only have 113 signed contracts worth 38 million yuan ($5.96 million), when 40 million was required to qualify to bid on the land.

"Over 300 people initially participated in our group and promised to sign, but they quit at the critical moment," Yu said.

That was Yu's second try, his first attempt focused on getting land at Dongzhimen on the second ring road. It failed because participants weren't willing to deposit an additional 90,000 yuan at a later juncture.

One man, who previously had put faith in Yu's project, told the Global Times on condition of anonymity that the sense of insecurity was almost impossible to get past.

"The bank froze my 150,000 yuan and Yu promised that was the down payment, but later we were asked to pay another 90,000 yuan," he said.

"Generally speaking, people who are interested in cooperative housing schemes are not rich and they are not professional enough to understand how the property industry works, so they will feel that it's too risky to deposit around 200,000 yuan before even getting the land," Fan Guocai, a Registered Real Estate Appraiser and Land Valuer in Beijing, told the Global Times.

"That's the problem. Cooperative housing schemes aren't only about cheaper houses. If the media keep promoting the idea that it's just buying houses at 40 percent off, then this scheme will never work," he said.

Yu said that using the cheaper prices as the sole attraction resulted in the loss of shareholders in the end, which will jeopardize the whole project.

However, Sun insisted that "members have the right to quit at any time and we're sure doing every step transparently will keep them from walking away."

Sun currently has 100 participants and needs between 800 and 1,000 to launch the scheme.

Lu Hang, CEO of Century 21 China Real Estate, told the Global Times that mutual trust is needed and that largely comes from transparency and the full participation of shareholders.

Yu has failed five times and now he is still working on the right model, waiting for the right time. He attempted to liaise with Sun over the matter, but Sun wasn't interested.

A developer's club

"Competing with sophisticated property developers to get land is not easy, as some of them have personal connections with the land authorities. With more money at their disposal, they can offer higher prices to get the land," Fan said.

China adopted a bidding system for land sales nine years ago and the bidder offering the highest price gets the parcel of land.

Having worked in the property market for over a decade, Sun said he knows how hard it is in China to purchase land. He said he would start by purchasing two pieces of land in Tongzhou and Daxing districts, but he is more worried about hidden rules than land prices.

"Even if we pay higher prices for the land, as long as we can get that land, we can save money," he said.

"Developers get the land with the loans from bank and they have to pay interest, adding to the total cost that will be reflected in the housing price. But for us, buyers put cash in the bank and don't have to use leverage. We build houses to live in, not to sell," Sun told the Global Times.

Yu said that in 2007, his team prepared bidding documents in accordance with government policies relating to building low and medium-cost housing, but a small and newly established property developer who was not the highest bidder got that land, in an incident that was reported by Xinhua.

"Even officials admitted our bids matched the government policy well, but they still didn't choose us, I don't know why," Yu said.

The Beijing Municipal Bureau of Land and Resources could not be reached for comment by the Global Times on Tuesday.

Pan Shiyi, CEO of SOHO China, the largest property developer nationwide, said publicly that cooperative housing schemes are a reflection of the dissatisfaction with the high housing prices and could never be made a reality in China.

These schemes are confronted with challenges including housing designs as well as the construction and distribution processes.

Attempts at similar schemes have been made in other parts of the country. Zhao Zhiqiang, a businessman from Wenzhou, Zhejiang Province managed to bid for a land parcel in a cooperative scheme, but six years have passed without any land being developed for shareholders.

"Those are the difficulties, but also the advantages that shareholders enjoy. They have the right to have a say in the kind of apartment, property management and community design, as long as they participate," Liu Junhai, head of the Commercial Law Institute at the Renmin University of China, the legal advisor of Sun's cooperative housing group, told the Global Times

"The government would have to support the scheme as currently there are no laws or policies limiting or encouraging the process, and cooperative housing models could be an effective way to solve housing problems as prices are still increasing despite government' efforts to curb the problem," Liu added.