Disappearing Shanghai: The Roots of an Urban Tragedy, Pt. I

Shanghai Scrap has interviewed Amy L. Sommers, an American lawyer who tried to buy a pre-War home in Shanghai and became intimately familiar with the legal complexities of ownership claims on old buildings there. She later wrote a law review article about her findings. From the interview:

Shanghai Scrap: To what extent are Shanghai’s property developers able to take advantage of the conflicting rights at play in these sub-divided homes so as to gain control of the property? Is it easier, at some level, for the local government to help a developer demolish and redevelop rather than restore rights and preserve?

Sommers: In thinking about this question, we have to think about scale. The historic residences that are still in existence in Shanghai – and the number seems to be dwindling by the week – are held or claimed by a diffuse group of individuals, some of whom have competing interests (the holders to legal title may want to sell the house to be renovated by a Hong Kong or foreign buyer; the holders of usage rights may want to use their claim to extract compensation or ownership title to an apartment of their own).

If an individual owner or would-be buyer would like to transfer rights in a single house, the transaction is too insignificant in scale to the problems the local authorities have to confront to warrant their taking an active approach that would run the risk of creating ‘disharmonious’ controversy by ousted holders of usage rights. And, given how expensive real estate has become in Shanghai, a would-be buyer likely doesn’t see the economics as warranting a contribution of extra funds to entice usage rights holders to leave.

At the same time, if a single developer comes along to redevelop the site, a much larger project can be constructed on the ground and that upside potential can create enough value to justify the developer in helping pay a high price to these same holdouts, and it is much easier or more efficient for the relevant government agencies to deal with a single claimant (the would-be developer) than to deal with a myriad of one-off purchasers.

Given these dynamics, it’s probably not surprising that the local property officials don’t perceive much premium in taking an active role to facilitate the clearing up of remaining hold-outs of properties where redevelopment of the site is not planned.

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