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BEIJING - THE chance to be a home owner should have made driver Luo Gan the proudest man on earth after over 40 years of living in a rented one-room shack.

But buying the flat, which cost 400,000 yuan (S$80,000), to house his family of four has wiped out his entire savings.

Mr Luo, who used to pay a nominal monthly rental of 3 yuan, is one of many ordinary people who feel squeezed by China's sweeping housing reforms of the late 1990s.

While reforms have led to rampant profiteering and rising housing prices, what is missing is a proper system of welfare housing for the poor as well as fair compensation in relocation disputes.

Mr Luo's old living quarters were demolished in 2002 in one of the capital's ongoing waves of urban renewal.

His district government and a commercial developer gave him 98,000 yuan for the loss of his 14-sq-m living space, but it was far from enough to buy a new flat.

'What can 98,000 yuan buy you these days? Maybe only a toilet,' the disgruntled 50-year-old Beijinger told The Straits Times.

He found that prices started at around 200,000 yuan for a two-bedroom flat some three hours away from the city centre. Nor could he get an economy flat - a form of welfare housing 20 per cent cheaper than market prices - as 'there are long queues for these flats and you need 'connections' to buy them', he said.

To buy an 84-sq-m flat in the city, he had no choice but to use up his and his aged mother's combined savings.

Unfair compensation for the loss of land and homes is also a bone of contention in rural areas, where land grabs by local officials and commercial developers have sparked protests in recent months.

In the last few years, China has experienced an unprecedented construction and property boom - but one which the average citizen feels left out of.

In the cities, rich speculators who buy and sell houses for investment purposes have driven prices beyond the reach of poor urbanites.

In the countryside, villages have been swallowed up by factories and industrial parks. This is beyond the control of many peasants because their land is essentially state-owned and their leases are restricted, expiring within 30 years or less, compared to 70 years for urban leases.

In a bid to cool urban housing prices and reduce rural discontent, the central government tabled a new five-year economic blueprint in March that aims to rein in excessive real-estate investment, build more low-cost housing and upgrade rural housing infrastructure.

However, observers say there is a need to go further and rethink China's existing welfare housing schemes, which are inadequate or riddled with abuses that have put them out of reach of residents who need them most.

Others say bolstering farmers' land rights would not only stem unrest but alleviate the cycle of poverty, as farmers could then use the land as collateral for loans or sell the land itself. In short, more of the right reforms - not less - could be the medicine for the country's ills.

While China began experimenting with property sales and ownership in the 1980s, the key year for housing reform was 1998, when then-Premier Zhu Rongji began widespread privatisation of state housing.

In that year banks introduced mortgage loans, which Chinese Academy of Social Sciences economist Ni Pengfei calls the single most important push towards the creation of a property market.

'The fact that residents could now take out loans to buy houses created the demand that allowed commercial housing to be developed on a large scale,' Dr Ni told The Straits Times.

During this period, however, it was high-ranking employees of state-owned enterprises and elite Communist Party members who reaped the most obvious benefits, says legal expert Cai Dingjian.

To wean them quickly off paying the government paltry rents for their flats, they were entitled to buy the flats at a fraction of the market value - well under 100,000 yuan in some cases.

They were then able to sell them off at a hefty profit a few years later, contributing to market speculation that has seen double-digit increases in housing prices in recent years.

A major generator of China's wealth, real estate now makes up nearly one-fifth of all fixed-asset investment. The latter made up 48.6 per cent of the country's GDP last year, according to the latest Real Estate Report.

However, the cost is that housing prices are going through the roof.

The average housing price in Beijing hit a national high of 6,725 yuan per sq m in 2005, or over 600,000 yuan for a 100-sq-m apartment, a 19.2 per cent jump from the year before, the China Daily reported.

But less than 10 per cent of locals can afford houses priced above 7,000 yuan per sq m, a survey conducted by the Beijing Urban Construction Research Centre found late last year.

The woes of lower-income Chinese are aggravated by the failures of the economy and cheap-rent housing schemes, introduced in 1998 to ease such residents into a market-based system of home ownership.

A crucial misstep occurred in the early years of the scheme when the government built too many such flats and ended up off-loading the scheme to private developers.

Developers who do take on such economy housing projects flout the rules by secretly keeping such flats for favoured clients. These include speculators who buy the flats for their resale value.

Other developers say there is a lack of incentives for them to build economy flats. Investment in economy housing has dwindled dramatically across the country from 10.9 per cent of all housing investment in 2000 to 3.6 per cent in 2005.

The cheap-rent housing scheme subsidises housing rental for poor families who cannot afford to own homes.

However, recent media reports showed that 70 cities have yet to implement such subsidies, including some of the poorer cities in the west and south-west whose residents need them most.

In general, analysts say policymakers have been more concerned over the past year with controlling speculation and cooling overheated housing prices in major cities than grappling with country-wide problems of housing welfare.

But many say this is not enough. Prof Cai believes there is a need for more mechanisms of public participation, particularly over housing demolition and relocation issues.

He told The Straits Times: 'China needs to give space to civic groups and NGOs to negotiate on behalf of these residents. This would reduce social discontent and act as a release valve for frustrations.'

clare@sph.com.sg