Despite the central government's efforts to control soaring housing prices and speculation, residents in a small county in central China's Henan Province are rushing to purchase, even if the apartments are still "up in the air".
Realtors in Guangshan County in Xinyang City sell houses with just apartment layout plans. Some properties are even sold with old buildings on the foundations.
A resident surnamed with Zhou, who paid 50 percent as a down payment last May for an apartment in the property project "Xianchengshuyuan", has not seen any construction signs on the lot. However, he is very optimistic about his potential apartment's value.
"Although I haven't seen a brick, the price has almost doubled," he said.
When Zhou signed the purchase contract with the realtor, the price was only 1,800 yuan (273 U.S. dollars) per square meter. By now, the price has surged to 3,000 yuan.
The price of property in the small county jumped despite a series of measures from the central government to crack down on property market speculation and rein in housing prices. This includes suspending mortgage loans for third home purchases and raising down payments on first and second homes. In January, the municipalities of Shanghai and Chongqing introduced a property tax as it aims to further control property prices in the metropolis.
With property costs sky-rocketing in cities, people have turned to smaller counties and towns like Guangshan, where the average per capita disposable income is only 12,000 yuan (1,821 U.S. dollars) per year. In fact, nearly half of the county's land had been developed or is being developed into new communities.
Purchase based on "folk trust"
Zhou, without knowing whether the project has any legal sales permit or not, is not worried much because the developer is a local resident.
"Although we don't know each other, I believe he won't run away, and even if there is a capital problem, he'd manage to return our money," Zhou added.
The case of "Xianchengshuyuan" is not the only one in the county based on "folk trust". The project, which had half of its "planning apartments" already sold by the end of 2010, still has old houses standing on the supposed construction site. Residents still live in the area.
On a website for the county's real estate sales, some advertisements sell apartments that only exist as layout plans. According to a written reply from Guangshan county government on Tuesday, the "Xianchengshuyuan" project does not have any sales permit.
The county's housing and construction department issued a warning notice and penalty notice on April 12 and 19 last year, but received no response from the realtor.
The local government started a thorough inspection on Monday and suspended the sales of all projects without permission.
Financial risk concerns
Cao Honghui, a financial researcher with the Chinese Academy of Social Sciences, said there are definitely financial risks for such unlicensed sales.
"Apartments are very costly, and it is absolutely necessary for buyers to acquire some basic knowledge," said Cao, an expert on real estate finance.
He said five permits are vital for a realtor to forward delivery housing sales in an urban area. The required permits include a land planning permit, a project planning permit, a construction permit, a land use permit and a sales permit. "The other four are the preconditions of the sales permit, and if any one of the five is missing, housing sales are illegal," he said.
Cao also said the government should be responsible for such illegal sales. "Local government departments of real estate, land resources departments and urban construction administration should have intervened and stopped illegal sales in the first place," he said.
