Shanghai Street View: Ruinous Real Estate

This week’s Street View shines a spotlight on Shanghai’s hyperactive real estate market, centered on the tale of an unlucky out-of-towner who got caught faking a marriage just so he could buy an apartment in the city. The story is at once humorous but also a little sad, as it exposes how ridiculous Shanghai’s real estate market has become. It also highlights some of the tactics the city has taken to try to cool the market, sometimes resorting to measures that seem both strange and unfair.

The supporting cast of characters in this soap opera also includes a relatively small number of wealthy people who are snapping up far more apartments than they need at the expense of others who could really use them as places to live.

I encountered the phenomenon firsthand just a few weeks ago when a friend told me about a wealthy acquaintance from neighboring Zhejiang province who owned several dozen apartments in Shanghai alone. It seems the poor landlord was lamenting his bad fortune because he couldn’t buy and sell properties as quickly as he usually did, since the market had suddenly slowed while people waited for a rumored government move to cool things off.

Needless to say, I had zero sympathy for that guy or the thousands of others like him, whose compulsive buying and selling have helped to drive Shanghai home prices to ridiculous highs, often twice as much as comparable properties in the west. In the meantime, other ordinary people like the out-of-towner in my story, surnamed Chen, are watching anxiously and helplessly while most properties move beyond the realm of affordability.

It seems the anxious Chen had graduated from vocational school at his home in Zhejiang, then came to Shanghai where he worked for 10 years in the IT industry in Pudong. Like many people around him Chen wanted to buy a home, but couldn’t due to a quirk in city policy that forbids unmarried people from outside Shanghai from buying local properties.

That policy was just one several measures the city has taken in recent years to try and cool the market, where prices were rising at double-digit rates as recently as a couple of years ago. I can’t blame the city for taking such actions, but this particular policy seems a bit extreme and unfair. Another friend who is single and from outside Shanghai recently complained of the policy as well, since it affects many of the young professionals like herself who want to pursue careers in the city.

But let’s return to our main story, which saw the desperate Chen team up with a couple of real estate agents who offered to help in their own pursuit to get a commission. To make a long story short, the agents helped Chen to get a fake marriage license, allowing him to purchase his dream home for just over a million yuan.

Unfortunately for Chen and the 2 agents, their scheme was later discovered and the trio charged with forging a marriage license. So not only did Chen end up without his dream home, but he also got a criminal record that included 4 months probation. The 2 real estate agents ended up with similar sentences, though I don’t have much sympathy for them.

I suppose I should commend the judge for giving Chen a suspended sentence, since the only reason he faked the marriage license was to circumvent the city’s somewhat arbitrary rule. But the case should also be a good starting point for introspection by Shanghai city officials and the small group of wealthy property buyers who are responsible for the plight of Chen and many people like him.

The Shanghai policy in this case is just one of many that discriminate against out-of-towners, who are banned from a wide range of benefits given to people who were born in the city. The policies are relics of the old Chinese system of resident permits or hukou, which entitle people to benefits like free education and subsidized health care in their hometowns only and have become a dinosaur in the current climate of high mobility.

I found Chen’s saga both amusing for its clumsiness and touch of fake romance, and also just a bit sad for its desperation and implication that an out-of-towner’s money was somehow less valuable than that of a Shanghai resident.

My real hope is that the bubble in the current real estate market will burst soon, allowing Shanghai to drop some of its draconian policies and heaping big losses on the wealthy speculators who caused the problem in the first place. But until that happens, people like Chen will continue to be the victims, as they are treated like second-class citizens and have to resort to fake marriage certificates and other schemes to enjoy simple “privileges” like being allowed to buy a home in Shanghai.

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