“We can’t own anything,” Da Xia spoke. She then paused before adding, “Well, I can own my notebook.” She then flipped the book down upon the table that sat in front of us as though it wasn’t even worth the right to own. “People sometimes spend all the money they’ve ever made on their home,” [...]
“We can’t own anything,” Da Xia spoke. She then paused before adding, “Well, I can own my notebook.” She then flipped the book down upon the table that sat in front of us as though it wasn’t even worth the right to own. “People sometimes spend all the money they’ve ever made on their home,” the 28 year old teacher continued, “then after 70 years the government takes it back from them.”
People don’t own their homes in China. They don’t own property. The federal government owns it all. When Chinese people say that they’ve bought a house what they really mean is that they leased it from the government for 70 years. When this time is up the property will, apparently, go back to its rightful owner: The People’s Republic of China. Like a car whose lease is up, the Chinese government is not slated to pay for the property it reacquires — it simply goes back to the Man and the deal is done.
Or so it seems. The current government in China which created these property laws has only been in existance for a little over 60 years so nobody knows what will really happen when property leases begin to expire. But the common sentiment about these 70 year leases does not seem to be overtly positive.
“We just bought an apartment,” an American friend who is married to a Chinese woman told me exitedly one day, but then he quickly redoubled on his statement and added with a shrug: “Well, we just bought an apartment for the next 70 years.”
Even though I’m sure that this individual does not plan on being alive 70 years from now there is something about not completely owning the property he’d just invested a large amount of money into did not seem to sit right with him — as it doesn’t with many throughout the Middle Kingdom.
The housing bubble
What the urban Chinese often call houses are more simplistically known to the West as apartments. “Houses,” as non-East Asians would call them, only exist in the countryside, and few urban dwellers would evern dream of moving out there. The majority of the people of China live in apartment high-rises, and they’ve come to refer to their little domiciles within them as “houses.” But the cost of many of these apartments in eastern China are now roughly the same as their similarly nomenclated brethren in the West. It is not uncommon to find apartments in China selling for as much as a modest sized house in the USA.
“Around how much do you think my apartment would cost?” I asked Da Xia.
“Maybe 600,000 yuan.”
Nearly a hundred thousand dollars for a one room, sort of crappy, railroad style apartment in the center of a small, relatively unimportant city in the east of China.
My source was not a real estate appraiser, but it is not difficult to estimate housing costs in a country where the topic is on the lips of nearly everyone from the news hour talking heads to middle class youths in coffee bars.
“People often have to work for 30 years before they can afford to buy a home,” Da Xie continued.
I asked her why anybody would put all of this money into leasing a place they may eventually need to return to the government if they were lucky to live long enough.
“China is an agricultural country,” she replied, “and the people think that they need to settle down and buy a home to feel secure.”
“There is also a lot of status to be gained from owning a home,” I added, proposing that home ownership is one of the new “big three wants” of modern China. The other two being a car and a job in business.
She just shrugged and said that she is happy being a renter — which, surprisingly, is still relatively affordable.
The true effects of China’s propety ownership system
Ultimately, even if the property rights pattern is not reformed before leases begin to expire — which I highly doubt — the plan ensures that a person will more than likely be able to live in their home for the duration of their life. A person who puts 30 years into saving up to buy an apartment is probably not going to live long enough to see the expiration of the lease. Whether his or her children will be able to inherit the property through China’s law of succession beyond the term of the lease still remains to be seen.
Hardly thirty five years ago a large portion of the population of China were living in communes — where people where assigned housing and there were no illusions about private property ownership. The fact that people can now pretty much own their home for the duration of their lives is progressive if viewed through the lens of recent history.
Property Leasing Versus Continous Taxation: Is there really a difference?
“How is it in America? Do you own your house?” Da Xia turned the tables on me.
I thought about this for a long moment. I remembered how my grandmother would grumble about how nobody really owned their property in the USA because you have to pay the government property tax or have it taken away.
“It’s about the same,” I finally responded in simplistic terms. “We think that we own our property but we really don’t. We need to pay a tax on it every year or the government will take it.”
My parents pay $400 per month to continue possessing the house they “own.” In China, you lease a property for seventy years, pay a one time tax on it, and then pay nothing more to the government for the entire duration of your ownership. The Chinese lease their property while Americans have their property held as collateral to ensure they pay their taxes. Both systems stretch the boundaries of the meaning of the word “ownership.”
About the Author: VBJ
I am the founder and editor of Vagabond Journey. I’ve been traveling the world since 1999, through 90 countries. I am the author of the book, Ghost Cities of China and have written for The Guardian, Forbes, Bloomberg, The Diplomat, the South China Morning Post, and other publications. VBJ has written 3679 posts on Vagabond Journey. Contact the author.
VBJ is currently in: Papa Bay, Hawaii
June 24, 2012, 12:05 am
Nice article and once again I learned something…..I didn’t know this about property ownership in China.
I liked how you summed it up: Chinese people get a 70 year lease on their property and pay the lease fees(aka taxes) up front. Americans get a perpetual lease on their property as long as they pay an ever increasing lease fee(aka taxes).
August 10, 2013, 11:44 am
The Central government is not the “Federal” government! The central authority has a lot more sway over people’s lives than the US federal goverment.
August 13, 2013, 3:09 am
The term “federal government” isn’t meant to solely imply that of the United States. The phrase is used correctly, here’s the definition:
“Of or relating to a form of government or a country in which power is divided between one central and several regional government.”
- August 13, 2013, 3:09 am
August 13, 2013, 6:44 am
There are huge differences! Or rather, there may be huge differences. Unsurprisingly, the law is vague as to what happens after 70 years. But what if I want to sell my apartment after 50 years of use? Is someone else buying a 20 year lease or a new 70 year lease? Paying a monthly tax is not as bad if you can make a profit on the house when you sell it. But the potential in China is that there is no profit, because you can only sell the remaining years on your lease of 70 years.
August 14, 2013, 1:18 am
In reality however, most of these places will be redeveloped before the lease is up. On the off chance that they are not, there are multiple taxes involved. There’s a transfer tax which is paid when property changes hands based on the sale price. However, the underlying land itself is not nearly as valuable, especially with a high-density unit. You might want to go check up what the actual “value” per sq m is in the city. It’s honestly not all that much. Once you have that being split by several hundred people and factor in the relatively small tax, it’s a few thousand RMB of usage tax for another 70 years. It’s pretty much nothing.
August 14, 2013, 1:23 am
Thanks for pointing out that the lease is for the land not the actual units in the building. This is an important distinction.
August 14, 2013, 2:18 am
Some math to back it up:
The term for the land use is: 土地出让金. If you look at say, Beijing 蓝land sales, it’s hitting around 5000 per sq m. Using a typical 100m flat, that’s 50w, however, it’s being split by anywhere from 5 to 30 floors assuming the same floor plans. Resulting in a range of 10w to 1.6w per owner. It gets a bit more complex with having many parties required to pay out, but it doesn’t take much imagination to think of a reasonable solution. I’d think it would go to the residents to vote on the action. For farms and 四合院 and many older buildings, it’s permanent usage rights. Those who are at obvious risk, are the rich with their villas if they happen to be in a prime spot. 1 mu of land all to themselves with the villa on top at a 5000 valuation for the land would mean a solid 333w to pay up. The market rules here, simple as that. Give current owners first go at the land, if that fails, the developers get a go at it. Surface structures are not limited by time restrictions as long as they are not torn down or rebuilt significantly.. as such, any development resulting in a tear-down means compensation… same as it works right now with new development.
I honestly see nothing wrong with this at all, land should not be hoarded, old structures should be updated and redeveloped as required. After all, there no such thing as “permanent” anyways. No one’s going to be kicked to the street and left homeless. Absolute worst case, people will just have to pay a fairly modest amount to renew the land grant. A year-to-year tax system is nerve wracking anyways. Pay it once and you have security.
- August 14, 2013, 2:18 am
- August 14, 2013, 1:23 am
- August 14, 2013, 1:18 am
March 30, 2020, 8:21 am
The same system of purchasing apartments (as opposed to houses) applies in many European countries. This is because the land the apartment building sits on cannot be divided into a part for each unit sold. (I think this is pretty obvious) So occupants pay a ground rent. Leases are usually for 99 years. China has changed this policy somewhat in favour of households that wish to transfer ownership (of the lease) to a family member to safeguard inheritance of the property. SO the system in China also has some advantages. Purchasing of property in China is about 65%, which is about the same as the US. No property taxes are paid in China.
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