Property-Led Urban Development Model in China: A Time for Change?

In the last 15 years Chinese cities have had phenomenal physical and economic growth, which has been powered by a property-led urban development model. Relying on state ownership of urban land and control of rural land, this model allows local governments, acting as local representatives of the state, to sell long leaseholds in land, referred to as Land Use Rights and use the receipts to fund urban infrastructure development to facilitate urban growth. It also encourages the property industry, designated as a pillar (lead) industry, to carry out property development not included in local development plans. This paper argues that the property-led development model fails to promote sustainable urban development, leading to land depletion and environment degradation. On one hand, it distorts the development planning regime to create situations of over-supply, poor location and inappropriate specifications of commercial property, heightening risks to property investment in all cities except Beijing and Shanghai. On the other hand, the model reduces both market and affordable housing supply, fuelling housing price inflation and aggravating affordability. The paper contends that it is time for the property-led development to become plan-led, and for property industry to put a greater emphasis on management and investment. It offers a set of recommendations for building a new planning regime, a new housing supply regime and establishment of an efficient property investment market.