By Pete Sweeney

SHANGHAI (Reuters) – In a corner of Shanghai, surrounded by a cement wall, lies one of the world’s most valuable fields of debris and garbage.

On paper, the Guangfuli neighborhood is a real estate investor’s dream: a plot in the middle of one of the world’s most expensive and fast-rising property markets.

But the reality is more like a developer’s nightmare, thanks to hundreds of people living there who have refused to budge from their ramshackle homes for nearly 16 years as the local authority sought to clear the land for new construction.

The stalemate highlights a fundamental and unresolved problem in China’s half-liberalized property regime: who owns the land?

Even as the fields around Guangfuli have bloomed million-dollar condominium towers, the residents live a scrappy existence. The plot is ramshackle and looks bombed out. Residents grow vegetables in Styrofoam boxes wedged between rubble and refuse. They freeze in the winter and boil in the summer as many windows lack glass and the walls are perforated with holes.

Most houses have the Chinese character for “tear down” spray painted on them by demolition teams, although the paint has faded as the standoff between the residents and the developer dragged on.

Long-time resident Luo Baocheng lives with his brother and family in a small three-story apartment building, which he said he inherited from his mother.

Luo said the property developer, Xinhu Zhongbao, refuses to pay the 4.2 million yuan ($649,150) he says the house is worth.

“They told me, I don’t have a property right certificate,” he said. “I’ve lived here 32 years, does that or does that not mean it’s my property?”

Local real estate agents say average prices in the area around Guangfuli are now closing on $12,000 per meter ($1,115 per sq ft). As Shanghai property prices accelerate – they rose 25 percent in March from a year earlier – the conflict over Guangfuli has intensified.

The residents said the developer has offered to swap their homes for new apartments in the distant Jiading district, but the catch is that they would have to pay.

Luo said he was asked to fork out 1.18 million yuan ($182,380) for two apartments for him and his brother; he wanted four apartments and balked at the price tag.

“Where are we going to find 1.18 million yuan? I’m retired and my brother is laid off,” he said.

The local authority, the Putuo district government, said in response to faxed questions that it wanted to demolish the neighborhood and “make residents’ lives better” by relocating them.

The developer, Xinhu Zhongbao, did not answer repeated calls requesting comment.

WHERE ARE YOU GOING?

As a rule, the average Chinese person’s wealth is held in the form of cash and real estate. But real estate wealth in China rests on a tenuous definition of ownership, particularly so when it comes to the old houses granted to people by their work units in the days before a property market existed as such.

When China implemented property rights, these people were allowed to continue using the houses they lived in, with the caveat that the local government could relocate them later, with some sort of compensation.

But widespread dissatisfaction with the compensation offered by local governments led to protests by residents and engendered the “nail house” phenomenon: residents who refuse to accept the buyout offer and stay put, boarding up their homes to fend off attempts to remove them.

The result has often been architectural absurdities: small houses standing in the midst of freeways, pedestrian malls, perched on concrete islands in the middle of pits excavated for underground parking lots.

But time, the great bulldozer, has seen most “nail house” residents in China bought out, pushed out, or, given that many are elderly, carried out.

(Additional reporting by the Shanghai Newsroom; Editing by Neil Fullick)