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REAL ESTATE: The Planned Chaos of a City
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The Planned Chaos of a City
By Michael Hart

BT 202006 REAL 03When you walk around a big Chinese city, it sometimes feels like there is no plan. Tall buildings are interspersed with shorter ones, old buildings are next to new ones and department stores are often sandwiched between office buildings and apartment complexes. But despite the chaos, there are planners and designers involved in how cities get built and often, a mix is exactly what they thought was the best plan.


BT 202006 REAL 02Planning parameters

If you look at a planning map in the office of an architect or urban planner, you’ll see an array of colours highlighting the different uses of specific land plots, usually broken down into residential, commercial, manufacturing and agricultural property types. Sometimes there is a special designation for mixed use, properties that may contain both residential and commercial buildings. These maps also highlight where the schools and green spaces are located. These masterplans are the result of a long process aimed at ensuring that there is adequate transportation and infrastructure to keep the city running well. These plans also have to take into account the historical elements of a city as well as natural boundaries such as sea shores, rivers or mountains. They usually also designate land for manufacturing and agriculture further from the dense city centres.

In especially dense cities where buildings are very tall, planners consider things like how tall a building should be, the shadows future buildings might cast, or wind tunnels a close cluster of tall buildings might create. Planners often try to leave in enough historic structures to keep neighbourhoods interesting, but also allow for some areas to be redeveloped to meet future needs. Increasingly, they also try to create a nice street level plan that includes plants and trees.



BT 202006 REAL 05The right balance

In North American cities, there was a time when properties with similar uses were often clustered together. Central Business Districts (CBDs) often had a collection of commercial space with no housing, while suburban areas were largely residential, with few businesses. The plans looked good on paper, but in practice resulted in the CBDs becoming ‘ghost towns’ at night, with high crime rates, while quiet residential suburbs had no culture or gathering places. One result was traffic jams each morning and evening as workers travelled en masse between downtown and the suburbs. This model has subsequently largely been rejected, and many North American cities are now working towards getting more housing into city centres and ensuring that neighbourhoods have more varied property types.

Chinese cities also face traffic jams, but mass transit and mixed-use projects that combine property types make the problem much less severe than it might otherwise be if property types were as segregated as they are in North America. Additionally, the jumbled nature of multiple properties types often means there is always entertainment or a place to eat just around the corner whether you are in a primarily residential neighbourhood or a commercial one.

Furthermore, different jurisdictions generate tax revenues by different means. Outside of China annual taxes on residential property generate significant income for local governments, while in China, companies are the largest local tax payers. This difference can help drive planning decisions. A recent wave of office construction in Tianjin, for example, was an attempt by districts to create a place for companies to register and thus generate ongoing tax income. Unfortunately, this has resulted in very high vacancy rates in the office market, and it has created some dead zones in neighbourhoods that were once livelier. In some ways, China is repeating some planning models that have been rejected abroad, while those countries look to China’s vibrant neighbourhoods for inspiration.



BT 202006 REAL 06The role of the developer

Once the city has designated a specific use for a piece of land, it is sold to a developer. The developer will be looking to make a profit as they build a project that is functional and financially successful, and they need to bridge the parameters set forth by the city planners with the wants and needs of the public who will ultimately buy or rent the space.

Sometimes developers will want to build and hold the project for several years, while in other cases, they will want to sell it as soon as they have finished construction. This latter case can also create dead zones where a developer has, for example, sold a street full of new shops and not really considered who might use them. The new owners may have to experiment before they find a retailer that is needed by the local population and is also able to afford the rent.



BT 202006 REAL 07Constant evolution

City planners are constantly updating their plans and often issue a new set of masterplans each year. These changes help illustrate that a city is never static. Major construction projects often take several years to plan and build. At the same time, some buildings will be coming to the end of their useful life cycle. As a rule, cities also become denser over time. A city that started out as a low-rise, walled city will eventually expand outwards and upwards. Building taller structures costs more money, but as a city becomes denser, developers are able to justify more expensive construction. This usually means that as part of their work, city planners will increase the permitted density on land plots as they come up for redevelopment.

Forced purchase

One of the aspects that some people don’t like in dense cities is a set of rules that allow either a group of investors or the government to force owners to sell in order to knock down existing structures and build something else. If investors are able to do this, the reason is usually some variety of a forced purchase rule, where once an owner has a certain percentage, say 75 percent of the apartments in a block, they can force the other owners to sell at market rates.

This is not generally done in China at present. Governments have a similar power, called eminent domain. They don’t have to acquire a specific ownership stake to force owners to sell, but rather mark out a specific section of land they need and pay owners to leave. The resulting construction is supposed to be for the public good, a major infrastructure project for example.

Neither experience is pleasant if you are forced to sell, but these are important tools to make sure a few people can’t block the continued development of a city.

BT 202006 REAL 04Conclusion

In summary, although Chinese cities often look like a hodgepodge of property types, which they sometimes are, there is usually a master plan that contains some logic regarding how the city is to develop, and that plan has to evolve, just as the city does. The best plan is usually to have combined and overlapping uses which play an important role in the development of diverse and rich cityscapes. Neighbourhoods with properties for multiple uses are often more culturally rich, but are also more valuable in financial terms. Laws that force owners to sell may seem distasteful, but are a tool that can sometimes be employed for the continued evolution of the city. They may allow for the construction of projects such as creating infrastructure that serves the greater community, or help to create a new project replacing one that was past its useful life and was no longer serving the community.

Ultimately, a city that keeps people circulating, gives them options to eat and be entertained near their homes and workplaces results in a culturally rich and more enjoyable place to live. So next time you find a nice restaurant or shop within walking distance of your work or home, remember, there is sometimes a method to the madness.


Michael Hart is the Managing Director of Griffin Business Management www.griffinbiz.com a real estate related investment and consulting firm with offices in Tianjin.

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