TO buy, or not to buy?

Previously, those are the only two choices a would-be house buyer had when facing Shanghai's skyrocketing housing prices.

But some people have found a possible new way to beat the high cost of housing: to build apartments on their own, rather than buy an exorbitantly priced one from developers.

Shanghai Jiayuan (www.xda.com.cn), a website run by a local co-operative housebuilding group, is the home of people sharing a dream of building their own houses. More than 3,000 people have applied to the website since it was established last December.

According to Zhu Jian, one of the organizers of the co-operative house-building group, it will find 500 participants who, after the completion of the project, will each own a 100-square-metre apartment in an area near the Outer Ring.

Initial operation

Zhu said their group will first establish a real estate consulting agency to handle the initial preparation work, such as land bidding, selection of architects and allocation of apartments. Members of the consulting agency will be chosen from the participants in the project. All are volunteers and will receive no pay.

"There are more than 100 people registered on our website who are professionals from the real estate industry, and many of them are willing to provide volunteer work for their own house," said Zhu.

"In addition, we will outsource the work that is beyond the capacity of our volunteers to professional companies, such as financial and consulting firms, a common practice among real estate developers."

When all the details are worked out, a real estate company will be established to acquire land through public land bidding or purchasing land from other developers.

Then Zhu's group will invite construction companies to submit bids for the building contract.

Zhu expects to obtain a suitable location by the end of this year. He said professional accounting and auditing firms will be employed to guarantee the security and proper use of the funds.

Zhu said each participant will have to pay about 200,000 yuan (US$24,184) in start-up capital to purchase the land, which will be supplemented by a bank loan. When the project is finished, the construction cost per square metre may reach 3,000 yuan (US$362). That means every group member can own a new 100-quare-metre apartment for about 500,000 yuan (US$60,000), about 40 per cent less than commercially built houses at the same location.

Zhu said the profits of the developer and the marketing are the main costs avoided in their project.

His viewpoint is echoed by some industry insiders as they admitted that developers' profits usually accounted for more than 40 per cent of housing prices in the current property market.

Zhu and his followers are not the only ones in Shanghai wanting to build their apartment through their own efforts. In April 2003 an overseas student named Wen Hong called on netizens to build houses together. By the end of July 2003, they had collected about US$1 million.

According to their plan, the land would be located in the Jing'an Temple area, with its estimated price of 5,691 yuan (US$688) per square metre at that time. But the project ended up a failure since the government didn't support it over such matters as tax reduction and land issues.

Similar trials are going on in Beijing, Nanjing in Jiangsu Province and Chengdu in Sichuan Province, but so far none has actually bought land.

Daunting problems

Analysts say the laymen's efforts to build their own house may turn out to be fruitless at the end as uncertainties such as the support of the government and the acquisition of land may pose unconquerable difficulties.

Zhu's group has contacted the Shanghai Land and Housing Administration Bureau, but their efforts don't appear to have won over the administration.

The bureau said co-operative housebuilding should be part of the Comfortable Housing Project, a government-led housing project to improve the housing conditions for mid- and low-income families, according to a document issued by the State Council in 2003.

The Ministry of Construction also released a notice in February to real estate departments in Beijing, Shanghai, Chengdu, Nanjing and Xiamen, asking local regulators to report on the issue and pay attention to possible legal complications such as the abuse of the funds accumulated.

Zhu said such rules pose no obstacle to their plan as their project would be carried out through the real estate company and don't contradict current laws.

"However, support from the government is indispensable to the success of the trial," said Yin Bocheng, director of the real estate research centre of Shanghai-based Fudan University. "A real estate company needs to undergo more than 100 inspections by the government, each of which can be a difficult threshold for such a group."

Analysts also pointed out that acquiring land is another key problem the group must overcome.

According to current rules, newly established property companies like the one Zhu is planning are not allowed to acquire State-owned land through public auction.

As a result, Zhu and his group may have to buy land from other developers which may raise the cost significantly.

Though most analysts are not optimistic about the prospect of Zhu's project, they do think local government should give the endeavour a chance.

"As there's no rule forbidding such practice at present, it's at least not illegal," said Wu Dong, a lawyer from Shanghai-based M&A law firm. "The government could give them some preferential policies as well as keeping an eye on possible legal complications."

Property insiders pointed out if the trial succeeded, it may provide a solution to Shanghai's surging housing prices as well as easing the housing burden on the government.