Alarm at Beijing plan to punish developers who leave land idle

PUBLISHED : Wednesday, 20 January, 2010, 12:00am
UPDATED : Wednesday, 20 January, 2010, 12:00am

Property developers have reacted with alarm to reports that Beijing plans to enforce a nationwide crackdown on developers found guilty of leaving sites idle for speculative land banking purposes.

'The government will strictly crack down on any illegal use of land and hoarding of sites meant for development to resell the land for profit,' Yun Xiaosu, deputy minister of Land and Resources, said last week.

'We are asking local governments to conduct site investigations and [look at] reasons for sites being left undeveloped and the survey should be completed by the end of this month.'

The briefing and the blunt comments follow warnings from Beijing in November that it planned to tackle idle development sites. It said developers would be charged a penalty tax of 20 per cent on sites left idle for two years, and in a worse-case scenario undeveloped sites would be confiscated without compensation.

The provincial governments of Guangzhou and Shanghai followed up on these warnings by saying that developers would pay a one-time penalty of 20 per cent of the land cost if construction failed to start within two years of site purchase.

At last week's briefing it was disclosed that 10,000 hectares of land sold for development on the mainland remained undeveloped. The government conceded that changes to urban planning and legal disputes accounted for 55 per cent of the total idle land, but said 45 per cent was due to delays by the developers themselves.

But developers disagreed with these findings and said hold-ups in construction on sites were most often the result of bureaucratic delays in securing the necessary building approvals or resettling residents affected by the construction plans.

'It is close to impossible for developers to comply with a two-year rule to start construction if the sites are earmarked for a large-scale housing project,' said Simon Hong, project development director of Hon Kwok Land Investment (China), a wholly owned subsidiary of Hong Kong listed Hon Kwok Land Investment.

The lengthy government application procedure could take about four to five years before construction was possible, he said, citing the experience the firm had after it bought three adjacent residential sites in Beijing Road in Guangzhou in 2006 with an approved plot ratio of 13 times.

Its original development plan for combining the sites targeted the construction of a total of 85,000 square metres of gross floor residential area to be completed in about two years, he said. But due to changes in urban planning, the city government had reduced the plot ratio by half to six times to control density in the area.

'We have now been negotiating with the government over the compensation for the loss of gross floor area and the talks have gone on for the last four years without significant progress,' he said.

Another case cited by Hong was the proposed development by Hon Kwok Land Investment of its Dong Guang Zhuan project in Tianhe district. The firm bought the site in 2004 but construction work has yet to start because enlargements undertaken by the city government to an access road to the site had not yet begun.

'We cannot transport cement and other construction materials to the site as the existing road is too narrow to allow dumper trucks to pass through.'

Hong said the city government was well aware of these problems and did not believe the firm was hoarding land. He suspected that the latest warnings of a crackdown were aimed at developers that had made only a minimum deposit of about 20 per cent as a down payment to secure rights to a development site.

Early this month the Shanghai city government threatened to repossess eight undeveloped sites after a report by the mainland property consultant E-House China that said 330 plots in the city remained idle.

Among the owners of the sites concerned are Cheung Kong (Holdings), Hutchison Whampoa and Shui On Land. All three denied this week that they were hoarding land.

Shui On Land projects director Hui Shing-sun said its urban renewal projects in Taipingqiao, in Shanghai's prime area, would be developed in phases as the government needed time to clear the site. 'We are not considered to be hoarding sites for development as we have to wait for the government to hand over the land to us. It is difficult to predict how long resettlement will take as some are fast and some are not,' he said.

A case in point, Hui said, was a site named Lot 115 that required 1,500 residents to be relocated. The Luwan district government completed the relocation of almost half the affected owners in just four days. However, at another site, Lot 126, the relocation schedule was now four months overdue because negotiations over compensation was still going on.

Cheung Kong said delays in construction arose mainly due to changes in urban planning, postponement of infrastructure work, resettlement of affected residents, and processing of planning approvals.