The Newest Counterfeit Craze – Buildings

It looks like most of my suspicions were confirmed. According to this article there was a lot of suspicious stuff going on.  First of all, the land was purchased by the developer at an extreme discount of only 640RMB per square meter.  Other developers in the area paid over three times that amount for similar developments.  Suspicious connections much?  As well, the developer, which did not have a license, was granted a “temporary license” by the gov’t for the express purpose of joining the public bidding, which the gov’t has confirmed was not truly public.  Color me completely unsurprised

Original Post

As you may or may not have heard, an apartment building (luckily still unoccupied and under construction) in the compound “Lotus Riverside” in Shanghai’s Minhang district fell over in one big piece on Saturday.  Below are some pictures.  You can find some more high resolution photos at EastSouthWestNorth

Toppled Building

Toppled Building

Toppled Building

Toppled Building

This really comes as no surprise, given China’s long and cherished history of building cheap, fake crap.  For the most part, the creation of fakes and counterfeits is relatively harmless and provides millions of impoverished Chinese citizens with an equally fake sense of fashion and being with the times, not to mention all of the tourists that can buy a fake LV bag to bring home that will provide them with an equally fake sense of being “down to Earth” and “of the people”.  Recently though, China’s craze for producing fakes has become more and more dangerous.  A fake pair of Adidas will at worst result in a painfully itchy case of Athlete’s Foot, but fake milk kills babies, fake drugs make sick people sicker, fake pet food kills animals, etc.  But this…this is a whole different kind of scary.  You can change your milk brand, you can import brand name drugs, but it’s not so easy to just up and change your home.  Looking at these pictures, it’s obvious that these buildings had basically no foundation whatsoever.  I’m not an engineer, but buildings of these size it seems should go down underground at least one or two stories with a solid foundation.  There are ten other buildings in this compound.  What about the people who bought homes in the other buildings?  What about people living in a building anywhere in this country?  How can you ever be sure that you aren’t living in a fake death trap ready to pile over because a baby sneezed in the wrong direction?

How does this happen?  Aren’t there inspectors to prevent this kind of thing?  Well, it just so happens that I used to date an interpreter, and one of her jobs was actually negotiating between foreign real estate buyers and a State-owned property development firm.  She had some interesting things to say about the issue.  Note that the following is just speculation, and I don’t have any inside connection or anything, but I’d wager this is probably pretty close to what actually happened.

The district government decides to bulldoze an older community and replace it with some brand new luxury high-rise apartments.  Minhang is qutie a developed area, and there are numerous subway projects under development.  It will soon be a downtown commuter’s dream location.  High-rises bring in shopping malls, shopping malls attract wealthy tax-paying brands.  Yadda yadda yadda.  But what about the people living on the land already?  Most of them can be bought off for a relatively small amount of money.  A few will resist, but the government will hire some faceless brutes from Sichuan to go in at 2:30 in the morning and “forcefully remove” any stragglers.  If anybody complains, the government will disavow any knowledge of the incident, maybe one or two straw men will be punished for show, but the show will go on.  Then, a “public bidding” process will begin to choose a developer for the land.  Actually, the government will have already decided who the developer will be.  In this case, that developer was “Shanghai Meidu Real Estate Company”, which wasn’t even a real property developer because their license had expired in 2004.  This won’t matter though, because nobody will check the records anyway.  They are chosen likely for reasons of family connections, or because the company recently opened a “gift account” at the bank for some key government officials, the details of which were exchanged in some private room at a KTV somewhere in the suburbs in between bouts of “singing” with the many ready and willing “singing girls” provided by the establishment.

The public bidding will continue, but this is mostly for show…to hide the fact that the developer has already been chosen, though everybody knows it’s happened anyway.  In fact, most of the bids will not even be real, but will come from State-owned shell companies who serve no other purpose than to make fake bids in public land auctions.  After the formalities are done, the developer will be announced, and plans will be made.  Actually, two sets of plans will be made.  One set of plans are private, shared only amongst the developers.  They will call for using the cheapest possible materials on the planet (of course, all made in China), mostly from Brother Wang’s cousin’s company “Henan Cheap Shit Concrete” and Second Brother Wang’s uncle’s sister-in-law’s boyfriend’s company “Yunnan Rust-a-Lot Steel”.  The second set of plans, the public set, will announce how the property developer will use only the highest quality American-made and European-made imported steel and concrete, providing a lush and rich environment in-line with Shanghai’s harmonious nature of “Better City Better Living”.  With these public plans, the developer can then start pre-selling the apartments on the market, even though the (non-existent) foundation hasn’t even been laid, and sell the apartments to willing buyers for over 14,000 RMB per square meter.  For those of you using the Imperial system, that’s about $200 / square foot.  Thus, a 100 square meter apartment (about 1070 square feet) will cost 1,400,000 RMB, or over $200,000.  That’s pretty expensive, even by American standards (not including Manhattan or San Francisco obviously).  Considering that doesn’t even buy you any land, and it’s dubious whether or not you really “own” anything at all (technically, you own the airspace, but if your building falls over, can you sell some empty airspace?), it doesn’t seem like that great of a deal.  But China’s population is huge, and people need a place to live, so housing is quite competitive.

But wait, you say.  What about when the government inspector’s come around to check the building?  Won’t they notice that the buildings actually use sub-par materials?  Or won’t they notice that there is no foundation?  Well, it’s likely the inspectors won’t even make it to the site at all.  Here we complete the perfect circle.  For you must remember, this developer was chosen for the express reason that it had good connections with the government.  Instead, the developers and the “inspectors” will likely have a party at the very same KTV (most likely they keep a special room reserved at all times for just such purposes), and the “inspectors” will literally be “blown” away by the project.

99% of the time, none of this will matter.  The building won’t fall down, people will happily go about their lives not knowing that their quarter-of-a-million dollar apartment is actually a hollowed-out shell, but they will probably just sell the apartment three years later for double their original investment anyway.  And so the system works.  Well, except for the occassional bridge collapse, train collision, earthquake…I’d better just stop now before I run out of sarcastic quotation marks.

So what happens to the property developer in the end?  Well, in this case, hundreds of people are already protesting outside of their offices demanding refunds.  But, if you will remember, most of the apartments were pre-sold.  Thus, a lot of the money was already used up in the construction.  Not all of it though, obviously, because you will remember they bought the cheapest materials possible.  Well, some of the money went into the government’s coffers.  Other parts of it went into the developer’s overseas bank accounts, and the remaining few 100-RMB bills were stuffed into the panties of a KTV girl.  Basically, there’s no money left, and the people will not get any of their money back.  They could take the case to court, but then the court is a part of the very same government that hired this developer-without-a-license in the first place.  If the government gave money to the people, it would be an “admission of guilt”, and we can’t have any of that.  The government will claim to go after the developers, but they will already be sitting on a beach in Southern Florida thanks to their newly-filled offshore bank accounts that nobody will be able to touch.  Perhaps, as the forumites at Shanghai Expat predicted, we will soon see on the market “Luxurious Lotus Riverside Single-Story Townhomes for sale” at the low-low price of 30,000 RMB per square meter.  Now that’s a steal.