Lump-sum land-use fee seeks to curb hoarding

PUBLISHED : Thursday, 11 October, 2007, 12:00am
UPDATED : Thursday, 11 October, 2007, 12:00am

Beijing is stepping up efforts to stabilise property prices, requiring developers to pay lump-sum land-use fees up front instead of in instalments before issuing registration permits.

Announced by the Ministry of Land and Resources, the new rule to take effect from November 1 is aimed at tackling supply after earlier measures to address demand, property analysts said.

The rule may also prompt smaller cash-strapped developers to release projects for sale faster. But larger developers with superior financial strength were unlikely to be affected, analysts said.

'The latest announcement is to improve market transparency and to pressure developers to build [instead of hoarding land],' said Nicholas Brooke, chairman of Professional Property Services.

'Having launched measures to control demand by influencing banks on mortgages and interests rates, Beijing is now moving to tidy up supply,' he said.

Mr Brooke, also a non-executive director of Shanghai Forte Land, said he hoped Beijing would increase land supply.

The land ministry also reiterated that all local government land sales must be carried out by auction.

'Only big developers will have the ability to acquire land now,' said Li Wenjie, head of Centaline Property Agency in Beijing.

The ministry's announcement comes less than one month after the central bank and the China Banking Regulatory Commission demanded banks increase mortgage and interest rates on borrowers buying their second residential units. The minimum down payment for second homes and residential property for investment purpose was raised to 40 per cent from 30 per cent. That for commercial properties was lifted to 50 per cent from 40 per cent.

Meanwhile, mortgage rates on investment homes and commercial properties were lifted by about 25 per cent to a minimum of 1.1 times the benchmark lending rate.

The mainland property market appeared to be crimped by the rate adjustments, as sales slowed during the recent week-long National Day holidays.

Lee Wee-liat, Jones Lang LaSalle Greater China's head of research, said: 'It is in line with the previous policies. Those were about tightening liquidity for buyers; now it is about tightening liquidity for developers to control supply. Beijing hopes to reduce price increases.'

He said Beijing would have to allow excessive liquidity to invest in Hong Kong and overseas as a way to get to the root of the problem.