In recent days, the issue of shared area in Chinese commercial housing has been heavily criticized. With the real estate market continuing to slump, several regions have recently announced the official cancellation of “shared area,” sparking attention. Experts point out that this is just a disguised price reduction, and that the various problems in the Chinese real estate market cannot be resolved solely by canceling shared areas, as it is unlikely to boost the market.
The Securities Times, a Chinese media outlet, reported on December 26th that there has been a new development in the long-standing issue of shared area in commercial housing. Since December, cities such as Hengyang in Hunan Province and Zhangjiakou in Hebei Province have successively announced the cancellation or gradual advancement of “shared areas.”
On December 17th, the Housing and Construction Bureau of Zhangjiakou City in Hebei Province announced the cancellation of the pricing restriction mechanism for commercial housing sales, encouraging the implementation of “on-site sales” and the gradual promotion of the “cancellation of shared areas.” On December 12th, the Natural Resources and Planning Bureau of Hengyang City in Hunan Province issued a notice stating that from January 1, 2025, the sale of commercial housing in Hengyang City will be based on internal building area pricing.
Prior to Hebei and Hunan, cities such as Zhaoqing in Guangdong and Xiangtan in Hunan had already proposed the “cancellation of shared areas.” While cities like Guangzhou, Hangzhou, Changsha, and Xiamen have not explicitly canceled shared areas, they have increased actual housing rates by relaxing “restrictions on donated area limits and optimizing calculations of balcony and other spatial areas.”
According to Chinese media reports, more cities may follow suit in canceling shared areas next year.
In China, “shared area” refers to the collective allocation of the entire building’s common areas among the property owners, including elevator shafts, pipe shafts, stairwells, waste chutes, transformer rooms, equipment rooms, public lobbies, corridors, basements, duty officer rooms, etc., as well as the area of public service rooms and management rooms for the whole building. The “cancellation of shared areas” proposed in many places mainly involves canceling or adjusting to internal building area calculations in the housing sales process.
The topic of shared areas is a common subject of complaints for the public every year. For example, when buying a 100-square-meter house, even seventy percent of the usable area might not be obtained, as corridors, walkways, elevators, and even some public green spaces are shared among residents and factored into the housing cost.
On February 18, 2019, the official website of the Communist Party’s Ministry of Housing and Urban-Rural Development released the “Residential Project Standard (Draft for Soliciting Opinions),” which stated that “residential buildings should be traded based on internal use area.” Many industry professionals interpreted this as a signal from the authorities to abolish the concept of “shared area” in real estate transactions. However, on March 15, 2022, the draft for soliciting opinions on the “Residential Project Standard” released by the Ministry of Housing and Urban-Rural Development no longer mentioned the requirement to trade residential buildings based on internal use area.
A member of the Communist Party’s National People’s Congress once mentioned that no professional institution had ever accurately measured each household’s shared area under the supervision of owners or third-party professional institutions, nor had any owner accurately measured their own house’s shared area. The division of shared areas lacks uniform standards. Which areas belong to shared areas, which do not, and whether there is double charging? All of this is left to the discretion of developers.
Several Chinese media outlets recently cited industry professionals stating that the cancellation of shared areas would mean that future homebuyers will be able to obtain exactly what they pay for, reducing disputes resulting from information asymmetry and further regulating commercial housing sales behavior.
However, U.S. economist David Huang told Dajiyuan that when developers build entire properties, shared areas have construction costs, which are reflected in government taxes and fees on shared areas. Therefore, the cost of shared areas ultimately translates to the construction within the internal units, leading to an increase in price per square meter. Hence, in terms of total expenses, there is no change. “It’s just a different way of pricing, like the issue of whether to weigh the melon with or without the peel, so it doesn’t have much impact.”
Huang stated that the current policy in many regions to cancel shared areas could enhance market transparency, boost buyer confidence, and stimulate housing demand, but the actual effect would be constrained by various factors. “The first is the economic environment, the second is credit policies, the third is supply and demand, and the fourth is taxation, fees, and social welfare. Relying solely on canceling shared areas cannot boost the market.”
He mentioned that even if shared areas were completely abolished in China, it would not solve the root problems in the real estate market, such as high tax burdens, low welfare housing guarantees, and very low efficiency in management. The personnel in charge of real estate market regulation often lack expertise and are frequently associated with corruption, such as issues with misappropriation of funds for pre-selling commercial housing.
Additionally, there is immense economic pressure due to significant declines in residents’ incomes. Huang said, “These issues remain unresolved, and mere stimulus policies cannot really touch upon the core problems, ultimately unable to rescue the entire Chinese real estate market.”
Professor Xie Tian from the University of South Carolina told Dajiyuan that the shared area calculation method in China is inherently absurd. “In the Chinese real estate market, this is something that developers have abused, creating opaque and unfair market sales practices.”
Xie Tian stated that local authorities cancel shared areas because people no longer believe that house prices will rise, as many have pointed out that shared areas are unfair. Officials are now just removing these unfair aspects, but it does not assist in reversing the downward trend of the overall housing market.
“This is not only a problem with real estate developers but a problem of government irresponsibility. It seems like good news, but in reality, it is not positive news; it is just a disguised price reduction, and this reduction alone is not enough as the market has not hit bottom yet.”
Jiang Pinchao, president of a U.S. financial conglomerate real estate investment company, told Dajiyuan that the so-called cancellation of shared areas in some places in China is meant to attract buyers by effectively reducing prices. However, this does not significantly stimulate overall purchasing intentions among the public.
“Whether people buy houses or not mainly depends on two factors: the first is demand, the second is the state of the economy. The former represents those buying for residential purposes, while the latter involves considerations for both investment and residential purposes. Other factors have minimal impact on purchasing intentions. The so-called cancellation of shared areas has minimal impact on the overall housing market,” he said.
Jiang Pinchao highlighted that in China, including public areas and facilities in housing price charges equates to charging for public parts twice, as there is separate property management, which entails extra charges to the homeowners.
“In the U.S., in such communities, there is a Homeowner Association (HOA), and residents have voting rights based on owning properties there. Generally, the HOA regularly collects fees used for maintenance of public areas or expenses for hiring managers. When Americans buy these types of houses, they are priced based on building area and land size, without additional charges for shared areas, because providing public areas is an essential part of property development. Charging for shared areas in China essentially amounts to increased pricing.”
Huang stated that the shared area calculation in China, collectively allocated by all property owners, is due to the high-density building habits in the country, which differs from urbanization in Europe and the U.S. Typically, in Western countries, there are fewer community-style property groups, leading to fewer instances of such practices.
He mentioned that how shared areas are calculated in China lacks transparency and is often inflated. Some developers add numerous supportive facilities to increase property prices, even though the utilization and practicality are low, leading to disputes. In Western countries, the costs of public areas are borne by developers and property management companies, but they charge homeowners through other means, making it more transparent for buyers.