Rule change would stop firms hoarding land

PUBLISHED : Friday, 23 December, 2011, 12:00am
UPDATED : Friday, 23 December, 2011, 12:00am


Mainland property developers should start construction on idle sites within three months of receiving a government order, according to the latest amendments to draft rules aimed at curbing land hoarding.

The Ministry of Land and Resources on Wednesday posted revised draft restrictions - containing 34 rules yet to come into effect - on its website for public comment.

According to the new rules, a developer would have to negotiate with the government on how to dispose of an idle site if it does not start building on it within three months of receiving a government order to that effect. The deadline may be extended by a year. The developer can also choose to be compensated for giving up rights to the land or exchange it for another site of similar value. If no agreement is reached, a developer will have to pay a penalty of 20 per cent of the land price if it has been sitting idle for a year, according to the revised draft rules. The government can reclaim an idle site after two years without paying compensation.

'This will cause developers to offer steeper price cuts because many developers already have liquidity problems and have delayed some of their projects,' said Du Jinsong, Credit Suisse's head of Asian property research.

The bank originally forecast a 20 per cent drop in mainland home prices by the end of next year from their peak in this year's third quarter because of Beijing's property curbs. Du said prices would fall faster if the proposed policy is brought in.

The amendments also clearly define idle land as sites that have less than a third of total gross floor area developed, on which there has been no construction for a year. Projects that have seen less than a quarter of their total investment and no building in a year are also regarded as idle.

'This creates long-term pressure for mainland developers. Currently, many of them have huge land banks because they are developing, or have developed, a small portion of a site - leaving a large portion of it vacant,' Du said.

In 2005, Beijing introduced rules to stop developers from hoarding land in a bid to check soaring home prices. The measures included action from local government if a site in its territory is left idle for two years after it is approved for use, and requiring developers to submit plans for old sites as a condition for new land bids in government auctions.