Investigating the Spatial Generative Mechanism of the Prepaid Building Houses on Rented Land Model in Shanghai Concessions (1938–1941)

Abstract

The Building Houses on Rented Land Model (BHRLM) was a pivotal land development model that drove Shanghai’s urbanization in the early modern era. This research examines the spatial generative mechanism of the Prepaid Building Houses on Rented Land Model (PBHRLM), prevalent during 1938–1941. It reveals how the wartime economic environment enabled interest alliances constituted with developers, landowners, and tenants to stimulate urban spatial growth. Firstly, we aim to analyze the features of architectural types linked to the PBHRLM using data-driven methods. Secondly, we aim to apply financial capital theory to investigate the innovations of financing methods. Finally, we draw on speculation theory to establish connections between the features of architectural types and the innovations of financing methods. The results include the following: (1) The PBHRLM’s dominant architectural types—new-styled lane houses, semi-shikumen lane houses, and garden houses—shared low-rise, high-density spatial features. (2) The PBHRLM’s innovations of financing methods lie in its convergence of financing and profitability, reflecting developers’ speculative intent. The research concludes that the PBHRLM operated as a spatial actuarial practice. Through risk games, the developers utilized the model to liberate land development from the control of financial capital and achieved multi-stakeholder synergy, generating small-scale, dispersed land development patterns. At the same time, surging housing demand thus perpetuated architectural types catering to the middle class with low-rise, low-tech tectonics and independent dwelling styles that continued to densely populate Shanghai concessions.

1. Introduction

During the modernization process (its historical period spans from the signing of the Treaty of Nanking in 1842 to the establishment of the People’s Republic of China in 1949) of many Chinese cities, the Building Houses on Rented Land Model (BHRLM) became a prevalent mode of urban land development. For instance, in the real estate markets of modern cities such as Shanghai, Tianjin, and Nanjing, various developers capitalized on the favorable conditions of the era—marked by population concentration and sustained land value appreciation—to secure substantial progressive interest through the BHRLM.

Of particular note is Shanghai, which functioned as the economic center of early modern China. As opposed to other cities, the BHRLM prevalent here triggered an unprecedented wave of speculation due to the turbulent political environment post-1937. This fostered a tripartite interest alliance—comprising developers, landowners, and tenants—that dramatically accelerated urban spatial growth.

The Prepaid Building Houses on Rented Land Model (PBHRLM), born of unique historical circumstances, stood as a distinctive marvel of Shanghai’s modernization, unparalleled in other Chinese cities in the early modern era. As an advanced version of the BHRLM, it revealed how land resource scarcity, when urban population capacity reached its limit, facilitated the transformation of spatial use value into exchange value through risk investment, driving a process of capital flow.

Naturally, advancing research on PBHRLM requires first comprehending the essence of BHRLM. It engendered a fragmentation of land rights: underground rights were retained by the landowner, while surface rights were allocated to the developer. The developer secured time-limited surface rights contingent upon payment of ground rent to the landowner. Upon lease expiration, the developer was contractually obligated to either demolish structures and return the vacant land or surrender both houses and land in their entirety to the landowner.

Following Shanghai’s designation as a treaty port and the subsequent development of its industry and commerce, the city’s magnetic effect on the national population precipitated a sustained appreciation in urban land values.

This escalating valuation catalyzed the proliferation of the BHRLM within both the International Settlement and the French Concession as early as the 1880s [1]. The widespread adoption of the BHRLM was primarily attributable to the following advantages:

Firstly, employing the BHRLM significantly reduced land development costs. In early modern Shanghai, buildings were generally low-rise and constructed with relatively inexpensive materials. Consequently, the land value frequently exceeded the construction cost of an ordinary architecture occupying the same plot area [2]. This means that an effectively managed BHRLM could yield huge returns relative to the initial low-capital outlay.

Secondly, employing the BHRLM offered developers strategic flexibility in timing their properties. Since the promulgation of the Land Regulations in 1854, landowners were obligated to pay the taxes irrespective of whether structures existed on the plot. During market downturns, this regulation resulted in huge tax expenditures. Consequently, if developers employ BHRLM, they can temporarily exit the market during the downturn and re-engage in land development when favorable conditions return.

Furthermore, employing the BHRLM enhanced asset returns for landowners. For landowners possessing plots but lacking the capacity or immediate plans for development, leasing the land offered multiple advantages: it shifted the burden of land tax onto the lessee while simultaneously guaranteeing that both the land and any structures erected upon it would revert to the landowner upon lease expiration.

Evidently, the BHRLM generated mutual investment benefits for both landowners and developers, establishing itself as a prevalent land development model in early modern Shanghai. This significance also attracted the attention of scholars. Pioneering research originated with scholar Yanlin Chen in the period of the Republic of China, who provided detailed explications of the BHRLM’s operational mechanics, arguing that it represented an optimal development pathway for experienced yet capital-constrained developers [3]. During the 1990s surge in urban history scholarship, numerous studies emerged focusing specifically on early modern Shanghai’s real estate market. While some scholars meticulously researched the development procedures of the BHRLM based on empirical case studies [4,5,6], others engaged in synthesizing theoretical frameworks concerning rights allocation, lease duration, and investment logic, building upon prior foundations [7,8].

Since 2000, research interest in this domain has gradually waned, resulting in a relative decline in scholarly output. Nevertheless, distinct research perspectives have emerged. Scholar Yingui Zhu, adopting a historical perspective, examined the BHRLM phenomenon in Shanghai during the Chinese People’s War of Resistance against Japanese Aggression, positing that its dominance by Chinese developers signified the maturation of China’s modern market economy [9]. Scholar Gang Liu, employing a property rights perspective, analyzed developers’ spatial strategies concerning plot morphology within BHRLM arrangements. He emphasized transport connectivity as a critical material–spatial consideration [10]. Scholar Zhenyu Mou, focusing on stakeholders, investigated the developer of the Thomas Hanbury family in early modern Shanghai, identifying the BHRLM as a primary mechanism for their substantial profit generation [11].

Current research reveals two key problems. First, most research focuses on sociological dimensions of BHRLM, examining relevant laws, events, and actors while neglecting its spatial generative mechanism. Second, existing research primarily addresses BHRLM’s procedural content without exploring its underlying economic principles. Furthermore, the PBHRLM developed after 1938 displayed significantly higher speculativeness than earlier practices. Analyzing its spatial generative mechanism is vital for understanding early modern Shanghai’s urbanization process under a wartime economic environment. Although some scholars note this phenomenon, their analyses remain descriptive. This research therefore examines PBHRLM’s spatial generative mechanism, revealing how extreme real estate speculation accelerated spatial growth—demonstrating both the concession’s distorted prosperity at the material–spatial level and a distinctive feature of early modern Shanghai’s urbanization.

2. Materials and Methods

2.1. Study Area

The study area of the research is Shanghai concessions, which functioned as the most prosperous urbanized zone in early modern Shanghai. The establishment of concessions provided the material foundation for transplanting Western modernization institutions into China, thereby positioning them as the vanguard of Shanghai’s urbanization.

In 1842, Shanghai was forced to become a treaty port pursuant to the Treaty of Nanjing. Subsequently, the British Settlement was established in 1845, followed by the American Settlement in 1848 and the French Concession in 1849. After several expansions, the boundaries of the Shanghai International Settlement (formed by the merger of the British and American Settlements) and the French Concession were largely finalized by the 1890s to 1910s [12,13] (Figure 1).

The accentuated urbanization process in the Shanghai concessions (1843–1943) was fundamentally predicated on extraterritoriality [14]. This system furnished a secured urban environment, catalyzing industrial–commercial advancement and facilitating unprecedented demographic agglomeration. On the eve of the outbreak of the Chinese People’s War of Resistance against Japanese Aggression in 1937, the Shanghai concessions had become China’s preeminent economic center [15].

2.2. Research Object

The research object is PBHRLM, a distinct institutional evolution of conventional land development models that crystallized in Shanghai’s concession during 1938–1941. Its genesis was intrinsically linked to the key money within the real estate market and the mass wartime immigration that overwhelmed the International Settlement and French Concession after 1937.

The key money originated from the secondary leasing of the shikumen lane houses. During the formative period of the shikumen lane houses in the 1870s, developers pursued rapid returns by delivering structural shells devoid of interior finishes. Initial tenants were compelled to self-fund fixtures and fittings, subsequently charging incoming tenants for these immovable improvements upon relocation—establishing the foundational key money practice. Post-1937, middleman landlords institutionalized key money across the shikumen lane houses, new-styled lane houses, and apartments, with premiums escalating to 70 times the monthly rent in the International Settlement and French Concession [16]. Consequently, key money imposed significantly greater financial burdens on tenants than base rents.

The outbreak of the Chinese People’s War of Resistance against Japanese Aggression in 1937 triggered a massive population influx into Shanghai concessions. Following the Battle of Shanghai in August 1937, the Chinese-administered areas became occupied zones, propelling waves of displaced residents and internal refugees toward the concession. It resulted in unprecedented demographic expansion, with concession populations surging by over 1/3 by 1938 compared to pre-war levels [17]. By 1942, the aggregate population in the International Settlement and French Concession reached 2.44 million, marking a 47.1% increase from 1936 [18]. This exogenous population shock triggered unprecedented demand for housing infrastructure.

Amidst this demand-driven market boom, small-scale real estate companies pioneered the PBHRLM. This model operated on a prepaid consumption principle: consumers advanced payments to service providers, receiving redeemable entitlements for future commodities or services, while providers deducted operational costs from prepooled funds [19]. When adopting this model, developers must first secure a land lease agreement with landowners. Upon obtaining the land, developers refrain from immediate construction. Instead, they published advertisements in newspapers detailing the project location, building specifications, construction time nodes, and lease duration, while stipulating that tenants must pay prepayments to initiate construction. Once the accumulated prepayments covered the costs for multiple residential units, developers commenced building. Upon completion, tenants occupied the premises. Most leases ran for approximately 20 years, during which tenants paid neither rent nor key money. This arrangement effectively constituted a surface rights purchase for the lease term, generating substantial rental cost savings for tenants (Figure 2).

This land development model emerged in 1938 and was warmly received by the market upon its launch. By early 1939, over 60 companies had engaged in this business [20]. Following the outbreak of the Pacific War in December 1941, the real estate markets in both the International Settlement and the French Concession became virtually defunct (following the Japanese occupation of the International Settlement after the outbreak of the Pacific War, Shanghai’s real estate market virtually ceased to develop), and PBHRLM activities nearly came to a halt. Thus, its existence spanned from 1938 to 1941.

2.3. Research Framework

As shown in Figure 3, the research framework delineates the three-step process through which this study examines the spatial generative mechanism of the PBHRLM:

(1)

The research will proceed through two key aspects corresponding to the PBHRLM starting from the issue: its architectural types and financing methods. These two dimensions represent the model’s unique features that differentiate it from existing practices, forming the critical parts of the spatio-economic study.

(2)

By analyzing spatial data, this research deciphers the architecture information associated with the PBHRLM. Through statistical analysis of the acquired case data, to reveal the spectrum of the architectural types corresponding to this model, and then to distill their spatial features.

(3)

Drawing on financial capital theory, this research traces how financing methods evolved in Shanghai’s land development models from 1854 to 1937, using combined development and urban data. Building on this historical analysis, it then examines how the PBHRLM’s financing methods innovated compared to pre-1937 models.

(4)

Drawing on fundamental concepts of speculative theory, this section analyzes how the architectural types and financing methods of the PBHRLM aligned with developers’ speculative intent.

(5)

Summarizing five key conclusions. Firstly, it outlines the spatial generative mechanism of the PBHRLM. Building on this foundation, it refines the mutually interested mechanisms among diverse stakeholders and the spatial distribution features of the properties associated with this model. Ultimately, it identifies the defining characteristics of urban morphology in the Shanghai concessions during their later developmental phase.

Herein, the tripartite relationship among financing mechanisms, architectural types, and speculative intent constitutes the key to analyzing the spatial generative mechanisms of the PBHRLM. Consequently, this conceptual model is further elaborated on in Figure 4.

2.4. Data Sources

The data utilized in this research comprises spatial data, development data, and urban data:

(1)

Spatial data serves to investigate spatial features of architectural types, including structures, spatial configurations, and decorative craftsmanship. This information is sourced from the Shanghai Municipal Archives, the Shanghai Urban Construction Archives, online databases, and physical architecture. Primarily, the Shanghai Municipal Archives and Shanghai Urban Construction Archives house original architectural drawings from 1900 to 1943, constituting authoritative spatial data sources. Secondarily, websites such as Virtual Shanghai, MAD Space, and Pastvu provide substantial collections of historical photographs of early modern Shanghai architecture, serving to supplement drawing documentation. Furthermore, a substantial stock of historical architecture persists in Shanghai’s central districts—primarily Huangpu, Xuhui, Jingan, and Hongkou—where field surveying, photogrammetric documentation, and structured interviews supplement archival material. Caution is warranted in distinguishing original fabric from later additions or alterations.

(2)

Development data serves to delineate the financing methods across various land development models. These datasets are sourced from early modern Shanghai newspapers, cadastral materials issued by concession authorities, and developers’ business archives. Specifically, newspapers provide developer-published advertisements and third-party reports on land development projects—key Chinese publications include Shun Pao, Sinwen Pao, and The China Times, while prominent English-language newspapers comprise North-China Daily News, The China Herald, and The China Press. Cadastral materials document property-specific land information, with cadastral maps and cadasters periodically issued by the International Settlement and the French Concessions constituting essential sources. The developers’ operational records, primarily restored in the Shanghai Municipal Archives, furnish property management documentation.

(3)

Urban data primarily serves two purposes: analyzing the macroenvironmental conditions of Shanghai’s real estate market during 1938–1941 and enabling the periodization of financing method evolution from 1854 to 1937. This category comprises significantly broader resources. Beyond the previously cited Chinese and English newspapers, it includes municipal archives, such as annual reports from the International Settlement and French Concession Councils, Shanghai local chronicles, and modern-era periodicals focused on economics and municipal affairs.

2.5. Research Methodology

2.5.1. Theory Study

(1)

Financial capital theory

The research employs the financial capital theory as its analytical framework to examine the evolution of financing paths in Shanghai’s established land development models between 1854 and 1937. Through comparative analysis, it subsequently identifies the innovation of the PBHRLM’s financing methods. The financial capital theory encompasses the concepts of industrial capital and financial capital. The research draws upon the perspectives of Karl Heinrich Marx, Rudolf Hilferding, Vladimir Ilyich Ulyanov (Lenin), and David Harvey as the foundation for its theoretical construction.

Firstly, the concept of industrial capital was introduced by Karl Heinrich Marx, who posited that the circulation of industrial capital comprises three distinct stages: the purchasing phase, the production phase, and the selling phase. Thus, industrial capital can be defined as the form of capital owned by industrial capitalists, specifically deployed to finance the procurement of inputs, the production of commodities, and their subsequent sale [21].

Secondly, the concept of financial capital was introduced by Rudolf Hilferding. He contended that industrial capitalists require external capital to scale production, while banks allocate portions of interest-bearing capital to these capitalists to generate profits. This bank capital, metamorphosed into industrial capital, constitutes financial capital—that is, capital controlled by banks yet operationally deployed by industrial capitalists [22].

Thirdly, Lenin argued that Hilferding overlooked the monopoly evolution of fused production-capital. Monopoly-stage financial capital controls industrial capital via two methods: system of holdings (financial capitalists dominating firms through partial ownership) and specialization (banks directly appointing production overseers) [23].

Finally, David Harvey conceptualizes financial capital as a contradictory process of interest-bearing capital in motion [24]. This perspective synthesizes existing theories: namely, that financial capital’s growing dominance within industrial capital culminates in its supersession of productive capital. Simultaneously, Harvey transcends prior scholarly limitations—which exclusively associated financial capital with banks—by incorporating non-bank financial institutions into the analytical framework.

The perspectives of the four scholars above reveal the relationship between financial and industrial capital, demonstrating a three-stage evolution: first, industrial capital operates independently; then, financial capital supplements industrial capital; ultimately, financial capital supplants industrial capital to establish its own dominance. This theoretical framework effectively describes the evolutionary trajectory of financing methods within Shanghai’s land development models between 1854 and 1937. Consequently, it provides the analytical basis for examining how the PBHRLM, which emerged in 1938, overcame the limitations of established models to adapt to new market imperatives.

Certainly, applying financial capital theory necessitates deeper contextual analysis. Though PBHRLM was designed for rental housing rather than sales, its prepayment mechanism enables long-term leasehold buyouts, thereby embodying industrial capital’s tripartite circulation stages. Similarly, while Lenin posited that monopoly-stage financial capital controls industry via a system of holdings or specialization, empirical research reveals that Shanghai concessions exhibited no land development activities via the former. Instead, direct bank-managed development via specialization dominated the 1930s real estate market. Thus, evidence-based theory adaptation remains pivotal for future research.

(2)

Speculation theory

In his work Speculative Economics, scholar Changzheng Huang identifies three defining characteristics of speculation: high-risk exposure, short-term orientation, and intellectual ingenuity [25].

Firstly, speculators face higher risk than those of conventional investments. These risks, stemming from market volatility, can precipitate substantial losses. Consequently, speculators must devise strategies to mitigate their exposure to such risks.

Secondly, speculators capitalize on short-term market opportunities, seeking profits from price differentials within volatile conditions. This activity frequently involves identifying unconventional opportunities and relies on foresighted market anticipation.

Thirdly, speculation is distinct from mere gambling; every decision adheres to an underlying logical framework. To minimize unnecessary losses, speculators diligently gather market intelligence to pinpoint viable speculative opportunities.

These three characteristics collectively serve as the analytical key for examining the correlation between the spatial features of architectural types and the innovation of financing methods in PBHRLM. The research will elucidate how developers, driven by speculative motives, selected specific architectural types and financing methods.

Like financial capital theory, the speculation theory must be contextualized within the practicalities of the Shanghai concession real market to interpret three defining characteristics. First, PBHRLM’s high-risk exposure demands examination through period-specific conditions—wars, hyperinflation, and demographic shifts—which constituted developers’ strategic foundations. Then, its short-term orientation stems from the nexus between financing methods and profit margins, incentivizing developers to minimize construction duration. Next, the intellectual ingenuity hinges on analyzing tenant classes targeted by PBHRLM, as it determines prepayment reliability. Collectively, these facets explain why new-styled lane houses, semi-shikumen houses, and garden houses were aligned with transactional intent between suppliers and demanders, establishing speculation theory as the conceptual bridge connecting spatial research to economic research.

2.5.2. Case Study

The research investigates cases of PBHRLM occurring between 1938 and 1941, compiling 52 instances constructed within the Shanghai International Settlement and the French Concession. These cases serve as the empirical foundation for the research conclusions. The collected spatial data for each property includes location, plot area, architectural types, number of storeys, and so on, while development data encompasses the property name, lease term, prepayment value, and so on. These case details are collected in Appendix A (

Table A1. The PBHRLM cases collected in this research.

Property Name	Prepayment Date (Batch)	Prepayment Value (Yuan)	Duration Per Batch (Month)	Tenancy (Year)	Number of Storeys	Types	Plot Area (mu)	Building Footprint (mu)
Jing Cun	1st: Aug. 1938 2nd: Sep. 1938	1st: 4800–5300 2nd: 2400	1st: 4 2nd: /	18	2–3	garden houses	1.168	0.677
Yi Cun	1st: Jan. 1939 2nd: Aug. 1939	1st: 8200–8800 2nd: 9000	4	20	3	new-styled lane houses	2.618	1.909
Jufu Xin Cun	1st: Jun. 1938 2nd: Aug. 1938 3rd: Oct. 1939	1st: 4200 2nd: 12,000 3rd: 27,000	1st: / 2nd: 3 3rd:/	20	3	garden houses	4.427	2.101
Younin Cun	1st: Jul. 1938 2nd: Aug. 1938	1st: 2550 2nd: 2790–5450	1st: 3 2nd: 3	20	2–3	semi-shikumen lane houses	4.539	3.425
Youhua Cun	Mar. 1939	8230–10,020	4	19	3	new-styled lane houses	3.510	2.211
Huiling Cun	May. 1939	6000–6700	4	6	2	new-styled lane houses	0.926	0.512
Youli Cun	Nov. 1939	7560–10,000	/	19	2–3	garden houses	7.131	1.429
Tongfu Xin Cun	1st: Jun. 1939 2nd: Jul. 1940	1st: 7500–8400 2nd: /	/	20	3	new-styled lane houses	1.559	0.909
Yi Cun	1st: / 2nd: Jun. 1938	1st: / 2nd: 7400	1st: 3 2nd: 4	22	3	new-styled lane houses	7.687	5.476
Yunshang Cun	Jul. 1939	5900–6000	2	20	2	garden houses	1.452	0.925
Yangzi Cun	Sep. 1938	1800	2	15	2	new-styled lane houses	2.276	1.523
Rui Cun	Mar. 1939	5800	2	20	3	garden houses	1.452	0.823
unknown	Nov. 1938	5500	3	20	2–3	semi-shikumen lane houses	0.698	0.470
Kangjian Cun	Oct. 1938	2900–4500	/	20	2	new-styled lane houses	1.676	1.118
Tian Cun	1st: Jul. 1938 2nd: Aug. 1938	1st: 5550 2nd: 6350	1st: 3 2nd: /	20	2–3	new-styled lane houses	5.362	3.263
Jing Yuan	Jul. 1939	3300	/	20	2	garden houses	5.387	2.885
Liulin Cun	Aug. 1939	11,000	4	20	3	garden houses	1.927	0.483
Xinhe Villa	May. 1940	42,000	2	20	3	new-styled lane houses	2.671	1.873
Shuntian Cun	May. 1939	5000–8500	/	10	2	semi-shikumen lane houses	13.156	10.054
Zhenpan Xiao Zhu	Oct. 1938	12,500–14,000	/	20	2	garden houses	3.593	2.191
Maolin Xin Cun	Aug. 1939	16,000–18,000	3	20	3	new-styled lane houses	2.484	1.995
Anle Cun	Aug. 1939	/	2	3	3	new-styled lane houses	1.588	1.042
An Cun	1st: Sep. 1938 2nd: Oct. 1938	1st: 3200–4600 2nd: 3600–4800	/	20	2	garden houses	0.995	0.721
Yian Cun	Aug. 1938	1600	/	10	3	new-styled lane houses	1.785	1.099
Fushou Xin Cun	Aug. 1938	3000	/	20	3	new-styled lane houses	2.135	1.406
Baiji Xin Cun	Aug. 1939	2600	2.6	10	2	other	1.272	0.890
unknown	Nov. 1938	6950	/	20	3	garden houses	4.324	2.437
Xinyu Cun	Jul. 1938	4200	3	20	2–3	new-styled lane houses	7.726	5.913
Dalu Xin Cun	1st: May. 1939 2nd: Aug. 1939 3rd: Oct. 1939	1st: 6300 2nd: 7100 3rd: 7500	1st: / 2nd: 3.5 3rd: 3	20	3	other	1.513	1.203
Rongkang Villa	Dec. 1940	30,000	3	20	3	new-styled lane houses	8.695	6.524
Yangzi Villa	Oct. 1938	1800	2	15	2	new-styled lane houses	5.434	4.274
Anhe Xin Cun	Dec. 1938	500–900	/	10	2	new-styled lane houses	5.343	3.871
Jufu Cun	Sep. 1939	7000–12,000	2.5	20	3	new-styled lane houses	0.802	0.542
Dafang Xin Cun	Jun. 1939	4500	2.5	18	3	new-styled lane houses	3.749	2.635
unknown	Apr. 1939	13,000	/	10	3	garden houses	3.535	1.421
Hatong Villa	Oct. 1941	/	/	18	3	new-styled lane houses	8.213	5.317
Jing Cun	Jan. 1940	7500	/	14	3	semi-shikumen lane houses	1.382	1.055
Fu Cun	Mar. 1940	17000	/	18	3	new-styled lane houses	1.941	1.389
Heyue Cun	Aug. 1939	6700	4	15	3	new-styled lane houses	1.236	0.889
He Cun	1st: Oct. 1939 2nd: May. 1940	1st: 6800 2nd: 8000	3	15	3	new-styled lane houses	2.480	1.469
Dinhe Cun	Mar. 1939	2000–2200	/	10	2	semi-shikumen lane houses	1.245	0.775
Ladu Xin Cun	Jan. 1939	3550	3	18	2	semi-shikumen lane houses	2.005	1.607
Yufeng Cun	Sep. 1939	5000	/	19	2	garden houses	0.824	0.502
Lan Cun	1st: Oct. 1939 2nd: Jan. 1940	1st: 4000 2nd: 9000	3	15	2	semi-shikumen lane houses	0.608	0.467
Panmai Xin Cun	Sep. 1938	5276–5973	/	15	3	garden houses	10.061	4.390
Xinxiang Cun	Dec. 1939	6000	7	20	2	semi-shikumen lane houses	1.000	0.820
Zhonghe Garden	Oct. 1941	126,000	/	23	3	garden houses	1.763	0.597
Yihe Cun	Dec. 1941	25,000	3	15	3	new-styled lane houses	1.836	1.257
Chunshen Fang	Oct. 1938	1150–1200	2	10	2	new-styled lane houses	2.348	1.766
Meilong Cun	Oct. 1939	/	/	20	3	new-styled lane houses	2.338	1.294
Zhuyin Villa	Nov. 1940	/	/	20	3	garden houses	3.679	0.882
Anhua Fang	Sep. 1939	/	3	17	3	garden houses	2.731	0.637

), and Figure 5 is their spatial mapping.

3. Results

Based on the relevant data, the research yielded two main results:

3.1. The Features of Achitectural Types in the PBHRLM

Statistical analysis of the collected 52 cases revealed the predominance of three primary architectural types: new-styled lane houses, garden houses, and semi-shikumen lane houses. These accounted for 50%, 30.7%, and 15.4% of the cases, respectively.

The new-styled lane houses constituted the predominant architectural type within the surveyed cases. Emerging in 1920s Shanghai, new-styled lane houses retained the row-upon-row layout of typical shikumen lane houses but significantly widened roads to accommodate vehicles. Typically rising two to three storeys, these houses employed hybrid brick-concrete-timber structures or brick-concrete structures. Moreover, residential units replaced high protective courtyard walls with low enclosures or railings. Entrance gates were scaled down in size and diversified in form, while interior amenities prioritized modern comfort with features such as private bathrooms and heating systems. For instance, the property named Yi Cun employed this architectural type (Figure 6), which was developed in 1938 by the real estate developer through collecting prepayments from tenants via newspaper advertisements for its construction [26].

The garden houses constitute the second most prevalent architecture type among the cases, which emerged in Shanghai during the 1870s. Initially, they were high-end residences self-built and self-occupied by a small number of the wealthiest elites. Typically, they comprised a detached house for the owner’s residence, enclosed by an open garden. Beginning in the 1910s, large-scale companies commenced the standardized construction of garden houses for rental or sale. Compared to the self-built, owner-occupied garden houses, these developer-built houses were arranged in a scattered or clustered layout. Though the volume of each residential unit was reduced, it maintained the status as an independent residence for a single household. For instance, the property Jufu Xincun adopted this architectural type (Figure 7). From 1938 to 1939, the real estate developer constructed the property in three batches, collecting prepayments from tenants prior to the commencement of each phase [27,28,29,30].

Semi-shikumen lane houses represent a less common transitional form between traditional shikumen lane houses and new-styled lane houses. Shikumen lane houses first emerged in the 1870s, typically following a row-upon-row layout with courtyard-house residential units. Its most distinctive feature is the shikumen gate—centrally positioned in the high walls on the southern side—serving as a characteristic entrance. The interior facilities were basic, lacking private bathrooms. Initially, shikumen lane houses employed free-standing wood frame structures, which were replaced by brick-wood hybrid structures after the 1910s. In contrast, semi-shikumen lane houses differ in two key aspects: firstly, they do not feature the classic shikumen gate, instead having a smaller gate offset to one side; secondly, each unit includes a private bathroom. A representative example is Younin Cun (Figure 8), developed in two batches between 1938 and 1939 through prepayments collected from prospective tenants by the real estate developer [31,32,33].

Case studies reveal that when developers adopted the PBHRLM, the architectural types they selected exhibited spatial features of low-rise and high-density.

First, the “low-rise” feature is evident. According to the cases surveyed, all three architectural types ranged between two and three storeys. Among them, 33% of the properties are two storeys, 56% are three storeys, and 11% include both two- and three-storey structures.

Second, the “high-density” feature is also reflected in the data. This research compares the building density of three types developed under the PBHRLM with similar types developed using conventional models. The results show that the average and median density for all types exceed 50% (Figure 9). Among them, the density of new-styled lane houses developed under PBHRLM remains similar to those built with conventional models, with both average and median values exceeding 64%. The average density of garden houses developed under PBHRLM reaches 62.5%, with a median of 50%, significantly exceeding those developed by conventional models. Meanwhile, the density of semi-shikumen lane houses developed under PBHRLM is slightly lower than that of traditional shikumen lane houses, though the absolute values remain high—with an average of 64.5% and a median of 76.4%.

3.2. The Innovation of Financing Methods in the PBHRLM

The financial capital theory postulates three stages of interaction between industrial capital and financial capital. The innovation of PBHRLM’s financing method lies in its introduction of a new type of capital, thereby transcending the constraints of the financial capital theory and advancing the operational logic of capital to a revolutionary fourth stage.

A 1936 article in The China Press contended that Shanghai’s entire credit system was fundamentally anchored in land and property values [34]. This “credit” involved utilizing external capital for one’s own purposes, requiring regular repayment of both principal and interest. This mechanism demonstrates the catalytic role of financial capital in stimulating the real estate market. However, the penetration of financial capital into this sector did not occur uniformly but evolved through distinct historical phases:

(1)

Industrial Capital Dominated Phase (1854–1894)

In 1854, the pattern of segregation between Chinese and foreigners in the Shanghai concessions was disrupted by a peasant uprising in China, leading a large number of Chinese refugees to begin settling within the concessions. The drastic increase in population contributed to the formal emergence of the real estate market.

However, from 1854 to 1894, financial capital had not yet significantly penetrated the real estate market. Foreign banks operating prior to 1892 focused primarily on commercial exchange and remittance services [35]. Similarly, loans extended by early modern Chinese native banks between 1860 and 1894 were predominantly directed toward financing trade [36]. Consequently, land development during this period was undertaken primarily using industrial capital.

(2)

Financial Capital Assisted Phase (1895–1926)

Following the signing of the Treaty of Shimonoseki in 1895, industrialization stimulated lending operations by banks, foreign companies, and commercial institutions in Shanghai. Financial capital subsequently began to participate in land development through two primary mechanisms: loans and debentures.

Loans are fundamentally characterized by a borrower obtaining a specified sum from a lender, concurrently committing to repay the principal amount plus agreed-upon interest within a designated period [37]. Debentures are a debt security, issued by a debtor in accordance with legal procedures to raise capital, which obligates the issuer to repay the principal and interest to creditors by a specified maturity date [38]. In early modern Shanghai, only joint-stock companies possessed the legal right to issue debentures.

During this period, foreign joint-stock real estate companies emerged as the dominant force in Shanghai’s real estate market. For instance, companies such as Shanghai Land Investment Co., Ltd. and Anglo-French Land Investment Co. consistently utilized bank loans and debenture issuances as an efficient blended financing strategy. By effectively supplementing their self-owned capital with these instruments, they developed numerous real estate properties within the International Settlement and the French Concession in Shanghai [39,40,41].

(3)

Financial Capital Dominated Phase (1927–1937)

Following the establishment of the Nanjing National Government in 1927, China’s political and economic environment gradually stabilized. Many Chinese banks experienced rapid development and were no longer satisfied with merely providing real estate loans [42]. Instead, they established real estate departments to engage directly in land development. Their capital was sourced through savings deposits and trust funds.

Savings deposits refer to funds formed when individuals conditionally deposit their idle or surplus monetary income into financial institutions such as banks or credit cooperatives [43]. A trust is an economic arrangement whereby a property owner entrusts assets to another party or a trust institution for management or disposition according to specified purposes or benefits [44]. The utilization of these two financing paths signified the displacement of industrial capital by financial capital in driving land development.

During this period, many major commercial banks carried out large-scale real estate operations in Shanghai. For instance, the Joint Savings Society, National Commercial Bank, and Continental Bank were among the Chinese financial institutions that extensively employed these two financing models for land development in Shanghai over the long term [45,46,47,48].

The tripartite evolution of Shanghai’s land development models between 1854 and 1937 demonstrates a trajectory consistent with the Financial Capital Theory: progressing from autonomous operation by industrial capital, through partial penetration of financial capital, to its ultimate displacement of industrial capital (Figure 10).

This trajectory reveals the following evolutionary trends in land development:

One of them is financing precedes profit. Land development consistently adheres to the inherent logic of capital circulation: the developers first utilize raised funds to acquire human and material resources, proceed through design, regulatory approval, and construction phases, and only subsequently achieve returns through leasing or sales. Consequently, profitability for developers materializes only after project completion—a pattern empirically evidenced by the pervasive lease and sale advertisements in contemporaneous newspapers such as Shun Pao, Sinwen Pao, and The China Times.

Another is the growing dominance of financial capital. As an interest-bearing debt capital, such capital required regular interest disbursements. Its rising share within land development funds consequently intensified debt obligations, elevating the profitability threshold for real estate. Illustratively, when the Joint Savings Society utilized savings deposits for real estate investments in the late 1920s, it stipulated that a property’s returns only qualified as profitable if they exceeded the 7% annual interest rate payable on the corresponding savings deposits [49].

Compared to land development models prevalent between 1854 and 1937, the PBHRLM introduced a critical innovation: the convergence of financing and profitability. It manifests through two dimensions:

First is the front-loading profitability characteristic of prepayments. The PBHRLM fundamentally altered the temporal sequence of “develop first, profit later” that prevailed from 1854 to 1937. After 1937, small-sized developers adopting this land development model lacked substantial capital reserves. They therefore opted to secure financing from tenants, where the collected prepayments included both construction costs and profit margins. This transformed the operational sequence of the traditional land development model, enabling instantaneous profit realization upon financing completion, thereby minimizing the profit cycle to its shortest possible duration.

Second is the elimination of financial capital involvement in land development activities. While the intervention of financial capital between 1854 and 1937 enhanced land development efficiency, it also imposed significant debt burdens. In contrast, the PBHRLM derived its entire construction funds exclusively from tenants, thereby excluding financial capital from the development process. The developers only needed to prepare land rent costs substantially lower than land acquisition expenses, with subsequent construction costs fully covered by tenant prepayments.

To illustrate the innovation of this financing method, the research selects Pubai Fang [4] (1929, employing BHRLM) and Tian Cun [5] (1938, employing PBHRLM) for comparison (Figure 11).

First of all, in both properties, the initial land rent constituted the earliest expenditure of equity capital, while the construction capital was acquired through external capital. In Pubai Fang, the ratio of initial land rent costs to construction costs was 1:18, whereas in Tian Cun it was 1:50. The reason lies in the fact that financing in BHRLM served to supplement construction capital, whereas in PBHRLM, financing encompassed both construction capital and net profit. Then, although the net profit of Pubai Fang was 11 times that of Tian Cun, it could only be realized 22 years later upon lease expiration. In contrast, Tian Cun achieved its net profit in less than a year, precisely due to its advanced profit realization mechanism. Consequently, no rental income data exists for Tian Cun after its completion. Its high efficiency in profitability compensated for its smaller profit scale. Finally, compared to Pubai Fang, Tian Cun carried no debt burden, as the developer did not utilize any financial capital. The prepayments from tenants were sufficient to complete land development. In certain cases, developers were even exempt from paying the initial land rent. For instance, when Hua’an Co. developed Yi Cun using the PBHRLM in 1939, it reached an agreement with the landowner to waive the land rent on the condition that the landowner would receive 25% of the project’s net profit [50].

Thus, if using the tripartite evolution framework of financial capital and industrial capital as a reference, the financing method of PBHRLM has already transcended the theoretical scope of financial capital. This is because the previously monopolistic role of financial capital is significantly reduced under PBHRLM, rendering it largely dispensable. The reason for this shift lies in the developers’ integration of financing sources and clients into a single entity, thereby achieving the convergence of financing and profitability.

4. Discussion

4.1. The Speculativeness of the Financing Methods in the PBHRLM

The core characteristics of speculation include high-risk exposure, short-term orientation, and intellectual ingenuity. The financing methods of the PBHRLM inherently embody this speculative nature:

Regarding high-risk exposure, the PBHRLM operated during the most politically and economically chaotic period in early modern Shanghai. Following the outbreak of the Chinese People’s War of Resistance against Japanese Aggression in 1937, persistently expanding fiscal deficits compelled the Nanjing National Government to engage in excessive money printing. Compounding this, early modern Shanghai’s economy, dominated by light industry, was highly dependent on raw material supplies from the rural hinterland. From 1939 to 1943, severe natural disasters devastated China’s interior, crippling industry and disrupting commerce. This combination of rampant monetary expansion and a sharp contraction in commodity circulation due to depressed industrial and commercial activity intensified hyperinflation [51].

For instance, the pre-war price of poplar and lauan plywood was 0.8–0.9 yuan per sheet, but by October 1941, it had increased to 13–14 yuan per sheet [52]. Similarly, the price of Xinma brand cement rose from 10.17 yuan per barrel in 1938 to 10,040 yuan per barrel in 1944 [53].

These factors led to a severe polarization between monetary purchasing power and commodity prices after 1937 (Figure 12). Consequently, the profit front-loading feature of the PBHRLM carried significant risks. Since the prepayments received by developers were limited to future tenants, and the number of tenants was directly tied to the number of residential units, the upper limit of revenue from land development was effectively fixed even before construction began. Amid severe currency devaluation, this profit margin became highly uncertain: the longer the construction period, the higher the inflationary costs. Beyond a certain threshold, these costs could offset all expected revenue and even lead to net losses. Therefore, strict temporal discipline was a prerequisite for profit maximization—directly explaining why PBHRLM required developers to achieve short construction durations and possess intellectual expertise in selecting tenant class.

Regarding short-term orientation, developers who employed PBHRLM faced pressure to complete construction rapidly to avoid cost overruns and maximize net profits. The construction duration per single batch for the three architectural types is shown in Figure 13. Through an analysis of 28 PBHRLM cases for which duration data could be obtained, it was revealed that both the average and median are approximately three months, which was significantly shorter than that of comparable properties developed under other models. The duration gap between the latter and the former ranged from twice to sixteen times. It demonstrates that extremely short development cycles became a consistent objective for the developers employing the PBHRLM.

Compressing single-batch construction durations ensured control over project time nodes. This necessitated selecting structurally streamlined architectural types to enhance construction efficiency, thereby accelerating the overall development pace. Certainly, it is important to qualify that not all pre-1937 real estate properties featured extended single-batch development times; the pre-1937 market also contained numerous short-term projects. However, construction duration lengths varied considerably across different projects during this period without a dominant trend towards short-term.

Regarding intellectual ingenuity, the widespread adoption of the PBHRLM after 1937 stemmed from developers’ astute strategic targeting of the middle class. Fundamentally, this model’s viability depended on collecting prepayments from tenants that covered both construction costs and profit, thereby eliminating the need for financial capital and minimizing own funds. This necessitated a financially capable target demographic whose prepayment significantly exceeded the combined rent and key money for comparable existing houses.

For instance, the newly constructed, new-styled lane houses near Yu Yuan Road in Shanghai’s International Settlement commanded monthly rents of 80 yuan plus key money averaging 800 yuan in 1938 [5]. By comparison, the prepayment for Tian Cun—a PBHRLM-developed property on the same road that year—ranged from 5500 to 6350 yuan [61]. Similarly, two-storey shikumen lane houses in the French Concession’s Western District during the same period had monthly rents of 20–23 yuan with key money at 280–1110 yuan [16], whereas the contemporaneous property named Jing Cun development required minimum prepayments of 2400 yuan [62]. These differentials demonstrate that prepayments commanded multiples of the combined key money and annual rental costs for comparable properties.

Firstly, this pricing level excluded a large segment of the lower class who lacked the lump-sum payment capacity. Taking industrial workers—a primary demographic among the lower class—as an example, statistical data indicate that the average monthly wages in Shanghai for 1938, 1939, and 1940 were 13 yuan, 17 yuan, and 34 yuan, respectively [63]. In contrast, the prepayment values for PBHRLM properties in the corresponding years were hundreds of times greater than the worker’s monthly wages (Figure 14). Even after accounting for necessary consumption expenditures from their wages, industrial workers possessed virtually no capacity to afford such prepayments.

Secondly, for the elites and upper class, the detached garden houses and opulent high-rise apartments represented the preferred residential products. The former, with their expansive private spaces and palatial scale, catered to the residential aspirations of the wealthy. The latter, distinguished by advanced modern amenities and their prestigious landmark effect, functioned as exclusive residential spaces for the politically powerful or economically privileged. In contrast, the three architectural types discussed earlier exhibited a discernible qualitative disparity.

Consequently, the most suitable clientele was the middle class. Having expanded following early modern Shanghai’s industrialization, this stratum comprised salaried mental workers employed by capitalists in modern enterprises [64]. Their income level enabled them to bear the prepayments required by the PBHRLM. According to statistical data from the Shanghai Municipal Council, the average monthly income for salaried employee households—representing the middle class across various nationalities—in early modern Shanghai between October 1939 and September 1940 was 1342 yuan. After deducting all necessary consumption expenditures, a surplus of 168.08 yuan belongs to cash on hand [65]. It indicates that these middle-class households could accumulate the required prepayment for the cases examined in this research for just several years. Therefore, developers could only secure substantial market demand by constructing architectural types catering to the residential needs of the middle class. As evidenced by documented instances, young film actor Zhuyou Wang resided in semi-shikumen lane houses named Younin Cun in 1941 [66]. Similarly, Yiren Lai, a managerial assistant at the Shanghai branch of the Nanjing Commercial & Savings Bank, lived in the garden houses named Yunshang Cun in 1940 [67]. These are concrete examples of the middle class inhabiting such architectural types developed by PBHRLM.

In summary, the dire economic environment compelled developers to devise the PBHRLM, enabling them to acquire non-financial capital through external funds with minimal equity capital for land development. However, the upfront capture of profits forced developers to accelerate construction to avoid losses caused by currency devaluation. To achieve cost minimization and profit maximization, developers focused on compressing construction durations and targeting the middle class. Thus, the PBHRLM aligns with the three characteristics of speculation theory, representing a speculative practice aimed at a scarce commodity—residential houses.

4.2. The Alignment Between Architectural Type and Financing Methods in the PBHRLM

Given the PBHRLM’s inherently speculative financing methods, developers could only effectively mitigate risks and maximize profits by constructing architectural types explicitly designed for speculative operations. New-styled lane houses, garden houses, and semi-shikumen lane houses optimally fulfilled these requirements. Crucially, these types shared defining low-rise, high-density spatial features, whose segmented features can be further analyzed as follows (Figure 15):

(1)

Low-tech tectonics

The core advantage of low-tech tectonics lays in its inherent capacity for expeditious development, thereby enabling the short construction durations.

First, all three architectural types employed mature and straightforward structural systems. The semi-shikumen lane houses typically utilized free-standing wood frame structures or hybrid brick-concrete and timber structures, while new-styled lane houses and garden houses primarily relied on hybrid brick-concrete and timber structures or brick-concrete structures. These kinds of structures had been present in Shanghai from the 1870s to 1910s and had evolved over many years. Consequently, locally owned Chinese construction companies possessed extensive, highly proficient mastery of the associated construction techniques. In contrast, apartments emerging in Shanghai from the 1920s presented significantly greater technical demands. Their collective dwelling style, increased construction heights, and heightened functional intensity necessitated more complex systems such as reinforced concrete frame structures and steel frame structures. This substantially elevated construction complexity, particularly for high-rise apartments, whose execution remained dominated by foreign construction companies and only a select few large Chinese construction companies.

Moreover, the low-rise profiles and limited functional intensity of these three architectural types exempted them from complex modern service duct mandates by concession authorities. Typically, satisfying basic requirements for water supply, electricity, and rudimentary heating was sufficient. In contrast, apartments employing a collective dwelling style faced substantially higher infrastructural demands due to safety and comfort regulations. This architectural type not only required service ducts of higher specifications than those found in lane houses or garden houses but also necessitated a comprehensive suite of service ducts, including centralized heating, cooling, ventilation, gas supply, and elevators. Consequently, the construction complexity associated with utility installation was significantly reduced for the architectural types developed under the PBHRLM compared to apartments.

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Independent dwelling style

The advantage of the independent dwelling style lies in its alignment with the needs of the middle class and its facilitation of project management.

Firstly, independent dwelling style is manifested in the allocation of a complete residential unit to each household, meaning that all architectural space from the ground floor to the top floor is occupied and utilized by a single household. This constitutes a significant criterion for fulfilling the residential demands of this demographic.

The garden houses, since their emergence, have not only embodied the independent dwelling style but also featured an entire house possessing spatial independence or semi-independence. However, early garden houses were primarily funded and built directly by the elites and upper class. It was only later, with the population growth within the Shanghai concessions, that large-scale development by real estate companies emerged. Furthermore, the specifications of garden houses developed under the PBHRLM declined further, making them financially accessible to the middle class.

The new-styled lane houses were leased as entire residential units upon transaction. Each residential unit within a new-styled lane house is separated by transverse walls and adjoined in a row, ensuring that the domestic lives of different households do not interfere with each other within the structure. Although the semi-shikumen lane houses shared some features with the typical shikumen lane houses, they diverged from the collective dwelling style upon initial transaction, granting tenants the same independent dwelling style as found in new-styled lane houses.

Secondly, independent dwelling style enables residential units to function as isolated modules, facilitating low-cost, multi-batch development in properties. Case studies reveal that 11 properties developed under the PBHRLM adopted this multi-phase development strategy. For instance, the properties of garden houses feature multiple residential units arranged in a scattered or clustered layout, while the properties of new-styled lane houses or semi-shikumen lane houses consist of multiple residential units aligned laterally in rows. The construction process for all three architectural types progresses module by module, with each module corresponding to a single household. Construction within the horizontal plane can commence rapidly once prepayments from a sufficient number of tenants are secured. Consequently, subsequent construction batches impose no engineering impact on the preceding batch. This approach thereby establishes a low-cost path of “incremental construction”.

In contrast, apartments employing a collective dwelling style cannot achieve this convenience. Due to the highly integrated spatial and functional layout of apartments, coupled with complex service ducts, it is impossible to construct them in multiple batches vertically. If expanding horizontally to increase residential unit numbers necessitates absorbing prepayments from a large pool of tenants before construction can begin, significantly raising the financing threshold.

The selected architectural types of PBHRLM, featured by low-tech tectonics and independent dwelling style, enabled developers to build rapidly while meeting the housing demand of the middle class. It allowed developers to collect prepayments sufficient to cover both construction costs and profit margins, thus securing project financing. Such spatially calibrated speculation further incentivized multi-batch pricing strategies during phased construction. For instance, in the property named Dalu Xin Cun, the prepayment for the first batch was 6300 yuan [68], the second batch 7100 yuan [69], and the third batch increased to 7500 yuan [70]. It allowed the increment in prepayments to offset the currency devaluation, ensuring profit maximization for the land development.

4.3. Tenant’s Risk Exposure in the PBHRLM

Through meticulous execution of the PBHRLM, developers successfully enhanced their own risk resilience. Correspondingly, tenants became the ultimate risk bearers. This fundamental risk transfer is demonstrably evident in the following points:

(1)

Rebate gimmick

As an increasing number of developers adopted the PBHRLM after 1938, some devised a rebate gimmick strategy upon maturity to enhance their competitiveness.

This involved deducting an additional portion from tenants’ prepayment to establish long-term fixed deposits at banks, with deposit durations precisely aligned to lease terms. Upon completing the deposit arrangement, developers would transfer the passbook directly to the tenant. At lease expiration, tenants could claim the accrued interest from the bank using this passbook. Initially, interest amounts were lower than the prepayment sums; however, interest amounts were strategically calibrated to equal or exceed the original prepayment principal, fostering a perception of cost-free long-term leasing among tenants. For instance, Yao Xinji Tenancy Co. required a 4200 yuan prepayment for its property named Xinyu Cun while declaring a 1000 yuan rebate upon lease maturity [71]. Similarly, Dajian Co. collected a 6950 yuan prepayment for its property on Yu Yuan Road with a promised maturity rebate of 10,000 yuan [72]. When the PBHRLM was adopted, rebate gimmicks were a commonly employed practice. Among the 52 cases collected, 15 explicitly documented the use of such strategies. Contemporary newspapers also reflected scholarly criticism targeting this widespread market misconduct [16].

(2)

Financing fraud

Within this model, the developers were not required to provide any form of tangible asset as collateral. This resulted in a relationship built on “believe” rather than “credit” between supply and demand, creating extremely low costs for illegal conduct. Consequently, minimal accountability and high-value prepayments fostered some fraudulent schemes operating under the guise of the PBHRLM. A minority of developers outright absconded with tenants’ prepayments after collection. Tenants typically only discovered the fraud after exceeding the contractual completion deadline.

A representative case occurred in 1938 involving Zhenxin Real Estate Co. The company’s general manager, Liwu Wang, claimed plans to develop a property named Gen Cun and solicited public prepayments. Eighteen tenants subsequently signed contracts, which stipulated project completion within 50 days. Half a year passed without tenants receiving occupancy notices. After realizing the deception, tenants sued. Investigation revealed the company had not even obtained a construction permit. Due to the absence of applicable laws, the court ultimately acquitted Liwu Wang, merely requiring him to refund the prepayments [73]. Financing fraud was a widespread phenomenon at the time, as evidenced not only by legal disputes documented in historical newspapers and archives but also by severe criticism from early modern scholars in Shanghai [16].

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Cutting corners

The use of cutting corners served as an effective method for maximizing profits under the PBHRLM, a practice particularly evident in the treatment of facade decorations (Figure 16).

For instance, houses in Yi Cun and Younin Cun employed large expanses of mortar render or bush-hammered concrete finishes, eliminating the refined craft details featured in earlier comparable properties. While the garden houses within Jufu Xin Cun displayed Spanish and American stylistic elements on their facades, this reflected not developer intent but regulatory intervention. In July 1938, Daqing Co. submitted facade designs of such primitive simplicity that the French Municipal Council deemed them esthetically unacceptable, compelling a redesign of the property [74].

The above three types of behaviors demonstrate that the PBHRLM exposed tenants to potential risks throughout the entire land development process.

Firstly, the rebate gimmick emerged at the inception of the development process. Although tenants were promised considerable bank interest, the rampant inflation after 1937 significantly eroded the real value of the interest, rendering them far lower than the value of the prepayments. Moreover, after deducting the principal amount reserved as deposits, the remaining development capital was further reduced, ultimately compromising construction quality. For instance, during the first batch of the development in Tian Cun, the developer deducted 587 yuan from the 5500 yuan in prepayments collected from tenants as a reserved deposit principal, accounting for 10.7% of the total [5].

Secondly, financing fraud typically occurred after developers had secured prepayments from tenants. A critical factor enabling such practices was the absence of targeted regulations governing prepayment financing in China at the time. Furthermore, after 1937, the Shanghai municipal government effectively functioned as a collaborationist administration under Japanese occupation, which meant it was largely unable to refine the existing legal framework. This resulted in a regulatory system that lagged significantly behind the rapid developments in the real estate market.

Thirdly, the cutting corner occurred during the later stages of the development process. In terms of architectural decoration, the quality of such elements deteriorated significantly compared to similar buildings constructed before 1937. For instance, the Verdun Terrace, a property of new-styled lane houses completed in 1925, featured an elaborate facade design including a finely crafted French Mansard roof and meticulous facade articulation using exposed red brickwork (Figure 17). Consequently, under the PBHRLM, tenants were required to make a one-time prepayment, which eliminated their ability to terminate the lease as they might in conventional rental agreements. As a result, when confronted with construction quality compromises, tenants had little recourse but to accept the conditions.

Therefore, within the chaotic market environment that emerged after 1937, developers leveraged asymmetrical information opacity to transfer development risks onto tenants, who were ultimately forced to act as the risk bearers of last resort in this struggle for survival.

4.4. A Comparative Analysis of PBHRLM and Land Development Models in Other Early Modern Cities in China

The PBHRLM in Shanghai’s concession real estate market exhibited distinctive characteristics compared to other early modern cities in China through its innovation of financing methods. This research selects Qingdao and Hong Kong as comparative cities:

(1)

The land development models of Qingdao

Qingdao, a northern coastal city of China, underwent early urbanization during German colonial occupation (1898–1914). Under the Kiautschou Lease Treaty between Germany and China, Qingdao became a German leased territory. During this period, Qingdao functioned as a garrison city under direct administration of the German Imperial Naval Office. German colonial authorities rejected the free-market economic system then prevailing in Shanghai concessions—which they criticized for fostering real estate speculation and public health crises—instead instituting military-directed land development financed primarily through appropriations from the German Reichstag.

To deter land speculation, German colonial authorities prohibited land hoarding, mandating that private purchasers complete construction within three years of acquisition. Failure to comply triggered progressive vacancy land taxes—initially 6% of land value, escalating annually by 3–24 percentage points. Additionally, landowners selling property were required to pay the government a value-added levy equivalent to one-third of the price appreciation above the original cost. Consequently, Qingdao’s real estate market operated under state-imposed constraints that severely curtailed developer speculation, limiting development to conventional modes: the BHPLM and the BHRLM. Developer financing relied predominantly on equity capital and mortgage loans. Though Japan later reoccupied Qingdao (1914–1922), its designation as a military operations zone perpetuated stringent market controls, preventing the emergence of sophisticated development models [75].

(2)

The land development models of Hong Kong

Hong Kong, a southern international port of China, developed its early urbanization under British colonial governance (1841–1997). Following the British occupation of Hong Kong Island in 1841, Hong Kong formally commenced its status as a treaty port. Subsequent treaties—the Treaty of Nanking (1842) and the Convention of Peking (1860)—ceded Hong Kong Island and the Kowloon Peninsula to British sovereignty, with all land designated as Crown Land vested in the British Crown. After 1898, Britain obtained a 99-year lease of the New Territories through the Second Convention of Peking, establishing the institutional land foundations of Hong Kong’s early modern real estate market.

For initial land transactions, Hong Kong implemented a public auction system awarding leases to the highest bidder. Crucially, such transactions constituted leases from the British Crown rather than freehold purchases, granting developers only fixed-term leasehold interests. During the lease term, developers could sell, sublet, or mortgage the land. Through this dual-layered market structure—comprising primary land auctions and secondary property transactions—land premiums, land taxes, and land rents became vital fiscal pillars for the colonial government, cementing the free-market system as Hong Kong’s foundational real estate institution.

Market participants included private individuals, partnership firms, and joint-stock companies, with Chinese merchants dominating the first two categories while British companies predominated in the latter. Throughout 1841–1938, developers primarily relied on equity capital and mortgage financing for conventional land development. Only large joint-stock entities like The Hong Kong Land Investment and Agency Company Limited could raise social capital through debenture issuances.

By the early 1950s, the Hong Kong real estate market pioneered two transformations: selling by storey and installment payments. Preceding this period, property transactions required purchasing entire buildings—a prohibitive threshold that limited buyers to high-net-worth individuals and depressed market prices. In 1948, Chinese developer Daotai Wu revolutionized the new model, selling individual storeys of completed buildings to separate owners. Thereby lowering the purchasing threshold. In 1953, entrepreneur Yingdong Huo enhanced this model through installment payment schemes, enabling buyers to make staggered payments prior to construction completion. This not only further stimulated the interest of the general public in purchasing properties but also allowed the company to utilize prepayments for operational purposes. This model was subsequently continuously refined, evolving from selling by storey to selling by residential unit, with long-term installment payment plans arranged through banks spanning 10 to 20 years. It eventually emerged as a prevalent land development model in early modern Hong Kong [76].

It is evident that neither Qingdao nor Hong Kong emerged as land development models surpassing the speculative intensity of the PBHRLM in Shanghai concessions.

On the one hand, the status of early modern Qingdao as a militarily administered city under German colonial rule granted access to substantial fiscal transfers from the German metropole for municipal construction. This financial arrangement was unlike Shanghai and Hong Kong. Both of the two cities mobilized developer profit-seeking incentives through a free-market system for generating high-yield tax revenues. Concurrently, German colonial authorities implemented comprehensive anti-speculation regulations, instituting a constrained real estate market regime that systematically curtailed the evolutionary refinement of speculative land development models.

On the other hand, Hong Kong, despite adopting a free-market system like the Shanghai concession, had a real estate market that demonstrated markedly lower developmental sophistication throughout 1841–1938. The territory’s construction-dependent growth paradigm lacked the socioeconomic foundations necessary to stimulate iterative innovation in land development models. Empirical evidence from 1938 reveals that over 56% (2100+) of Hong Kong’s 3750 real estate transactions involved farmland sales—a stark developmental contrast to contemporary Shanghai. Even the post-1950s emergence of the model of selling by storey and installment payments, while incorporating prepayment features, exhibited significantly diminished speculative potency relative to Shanghai’s PBHRLM. This differential arose partly because Hong Kong developers operated under the BHPLM, having already committed substantial equity to land procurement before collecting prepayments. More critically, the long-term installment structures (10–20 years) precluded immediate full revenue realization, thereby lacking the ability of the PBHRLM’s defining “convergence of financing and profitability capability.”

In summary, the thriving industry and commerce driven by the free-market economic system, combined with the acute land scarcity relative to housing demand induced by war-related factors, thus created the unique real estate market dynamics conducive to the emergence of PBHRLM.

5. Conclusions

This research examines the PBHRLM prevalent in Shanghai’s concessions during 1938–1941, analyzing its spatial generative mechanisms to establish a spatio-economic analytical framework for interpreting complex urbanization phenomena in early modern Shanghai. The conclusions are as follows:

(1)

When employing the PBHRLM, developers enhanced development efficiency through low-tech tectonics and catered to the residential demands of the middle class by independent dwelling style. Then, the model shortened the construction duration while securing a reliable source of development capital and profits. Concurrently, constrained by profit ceilings and currency devaluation, developers were compelled to meticulously advance each development phase to mitigate the risk of being unable to make ends meet. Consequently, the spatial generative mechanism of the PBHRLM functioned as a form of spatial actuarial practice driven by speculative intent.

(2)

The PBHRLM facilitated a tripartite exchange of benefits. For developers, the strategic orchestration of development phases and construction of specific architectural types generated substantial progressive interest. For landowners, leasing their land provided stable rental income. For tenants, successful housing delivery by developers eliminated the burden of exorbitant key money. Consequently, this model achieved mutually beneficial outcomes for all stakeholders under the risk game.

(3)

The PBHRLM embodied a developmental trend wherein land development no longer needed financial capital. This innovative approach constituted a strategic adaptation by developers to secure substantial returns amidst socioeconomic turbulence. Besides that, PBHRLM’s financing methods aligned intrinsically with contemporaneous realities: currency devaluation had severely curtailed banks’ lending capacity, rendering traditional development models operationally untenable. Consequently, this innovation disrupted the established three-stage framework of financial capital theory. A novel capital formation—termed “prepaid industrial capital”—emerged, effectively supplanting financial capital’s traditional role in land development.

(4)

When employing the PBHRLM, developers operated within a fixed total lease term contracted with landowners. Excessive development batches would compel later-phase tenants to pay higher prepayments for disproportionately shorter lease durations, thereby reducing occupancy rates for subsequent residential units. This constraint necessitated limiting project sites to under 3 mu and development batches to two or fewer. Consequently, properties utilizing this model were characterized by small-scale, spatially dispersed configurations.

(5)

The prevalence of the PBHRLM demonstrated that while apartments—characterized by a collective dwelling style—emerged as a new architecture type aligned with urban development post-1930, architecture types featuring an independent dwelling style retained their vitality. Within this context, new-styled lane houses and semi-shikumen lane houses formed communities with row-upon-row layouts, while garden houses formed communities with scattered or clustered layouts. Both kinds of communities expanded extensively in the western district of the concessions due to surging housing demand, collectively shaping the urban morphology: heterogeneity in the west and homogeneity in the east. It corresponded directly to the east–west residential segregation of the middle/upper classes and the lower class.

This research, spatially bounded by the Shanghai concessions and temporally focused on the 1938–1941 period, examines the PBHRLM to reveal spatial speculation driven by the conflict between rising housing demand and declining land resources within a wartime economy. The research demonstrates that policy regulation is essential for maintaining a healthy real estate market, with PBHRLM’s prevalence directly attributable to regulatory absence. These findings hold significant implications for contemporary China’s real estate development, including: (1) enhancing coordination between local and central governments at the policy level, (2) safeguarding fair competition among development entities, and (3) increasing development intensity for low-asset-class housing products in first-tier cities. Future research may build upon PBHRLM to investigate the iterative evolution of Shanghai’s residential spatial generative mechanisms post-concession, thereby contributing to a comprehensive framework of early modern Shanghai’s urban development trajectory.