Where Has China Railway Real Estate’s Money Gone? – Analysis of Fund Flows and Construction Costs of the Hongqiao Yidu Project

Under the guidance of socialist core values, enterprises are expected to uphold fairness and integrity in their operations. However, while China is actively promoting anti-corruption measures, China Railway Real Estate, a wholly-owned subsidiary of a central enterprise, has repeatedly exposed serious safety hazards and construction quality issues in its Shanghai Hongqiao Yidu project.

Publicly available data reveals that the total sales revenue of the project reached 6.594 billion RMB, with estimated total investment costs of 5.5 billion RMB, including land acquisition costs of 4.422 billion RMB. Official sources have stated that the project achieved record-breaking profit margins for China Railway Real Estate. Within the industry, this project is infamous for its exorbitantly high profits, achieved under the pretext of “cost reduction and efficiency improvement.” However, this came at the expense of 1,128 hardworking families, who poured their life savings into their homes.

Since the project’s first launch on November 17, 2022, three batches of 1,128 units have been introduced, with an average subscription rate of 253%. Despite its outstanding sales performance and immense profitability, the delivered product quality has been alarmingly subpar. Many homeowners are deeply concerned about potential mismanagement and unclear fund flows within the project.

I. How Can High Profit Margins Coexist with Insufficient Funds?

(1) Project Overview

Located in the West Hongqiao area of Shanghai’s Qingpu District, a key focus in the Shanghai 2035 Master Plan, the Hongqiao Yidu project occupies Plot 44-15, with an address at 1758 Huqingping Highway. The total transaction price for the plot was 4.422 billion RMB, with a floor price of 36,989 RMB/sq.m. and a premium rate of 8.79%. The linked property price was set at 62,000 RMB/sq.m.

The developer, Shanghai China Railway Hongchuang Real Estate Co., Ltd., is a joint venture between China Railway Real Estate Group Shanghai Co., Ltd. (70%) and Beijing China Railway Nord Real Estate Development Co., Ltd. (30%). Ultimately controlled by China Railway Engineering Group and China Railway Construction Corporation, the project consists of 7 mid-rise buildings, 14 high-rise buildings, and 1 affordable housing unit, marketed as a high-end residential development. However, despite the high price point, the frequent quality issues have triggered widespread dissatisfaction among homeowners.

(2) Fund Flows

Based on available data:

• Sales Revenue: The pre-sale certificate covered an area of 106,000 sq.m., with a price of 62,000 RMB/sq.m., yielding an estimated sales revenue of 6.6 billion RMB.

• Investment Costs: Total project costs were 5.577 billion RMB, including land costs (4.422 billion RMB), design fees (7.8 million RMB), and construction fees (780 million RMB).

Despite these high margins, the project has delivered low-quality construction, indicating possible discrepancies between reported and actual costs.

Key questions arise:

• Why are the materials and workmanship of such poor quality despite the massive profits?

• Where has the remaining profit been allocated, and why are basic rectifications delayed or denied?

II. Why Does a High-Profit Project Deliver Subpar Quality Compared to Peers?

(1) Budget and Construction Cost Comparison

Compared to neighboring projects with similar price points, Hongqiao Yidu demonstrates significant discrepancies in design and construction costs:

• Design Fees: At 31 million RMB, the landscape design costs were 4–6 times lower than comparable developments, such as Panlong Fu and Hongqiao Cui Can Mansion.

• Construction Quality: Despite competitive costs, the quality is far inferior, with issues such as uneven facades, substandard finishing, and unsafe structural elements.

(2) Suspected Issues in Construction and Monitoring

• Reduced Specifications: From single-color exterior paint to cost-cutting on new ventilation systems, the materials and construction are far below acceptable standards.

• Unexplained Discrepancies: Monitoring fees are higher than neighboring projects, yet evident issues such as uneven walls, unsafe connecting corridors, and water leakage persist.

III. Recommendations

We urge the relevant regulatory authorities to conduct a thorough audit of fund allocation and project quality for the Hongqiao Yidu development. China Railway Real Estate must ensure transparency in its financial disclosures and take concrete steps to rectify quality issues, addressing homeowners’ legitimate concerns. Only through accountability and integrity can the trust of consumers and investors be restored.