China tries to reassure homeowners over land rights

Ministry tells urban owners that they won’t have to pay more after their land rights expire, but analysts say the issue must be clarified in a law

PUBLISHED : Wednesday, 28 December, 2016, 8:00am
UPDATED : Wednesday, 28 December, 2016, 8:00am

China’s land ministry has assured the country’s urban homeowners that they won’t have to pay extra money for their properties when their underlying land use rights expire, at least for now.

But the country’s so-called land public ownership system, which offers the state unrestricted power to seize land and profit from deals, could continue to haunt the country’s quest for long-term stability and prosperity, according to analysts.

Under China’s existing law, all urban land is owned by the state and cannot be traded, but in reality it is often in the hands of local governments. They can sell “land use rights” of 20 to 70 years tenure to developers.

Millions of urban Chinese households own private property, but it means there is a legal limbo on what happens if the rights to land use expire.

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In Wenzhou, a city in the coastal province of Zhejiang, the local government shocked the country earlier this year by demanding local residents pay a hefty fee to renew the “land use rights” for their homes when their 20-year leases expired.

After months of quarrels and debate, China’s land ministry came out last week and made it clear that homeowners need not apply to renew or pay fees to extend land leases.

However, the ministry also said the arrangement was only temporary before a formal law addressed the issue.

“The response was mainly to stabilise market expectations and reduce disturbance to house transactions,” said Yan Yuejing, a research chief at E-house China R&D Institute.

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“The 20-year land leases indicate the authorities need to clarify in law on whether fees should be payable to renew land leases and how much to pay to form a unified solution. It may take at least three years for the legislation. More haste, less speed,” said Yan.

Former Chinese Premier Zhu Rongji privatised China’s property market in late 1990s, allowing Chinese urban families to move from dormitories provided by state employers into their own homes and creating a new engine for economic growth.

Meanwhile, local governments became the sole of supplier of land and revenues from selling “land use rights” to developers became the single largest off-budget source of income for local authorities. Hangzhou, for instance, reaped 152 billion yuan (HK$170 billion) from selling 122 plots of land this year, exceeding the city’s total on-budget fiscal revenues in 2015.

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To maximise financial revenues from land, local governments have initiated an urbanisation push unprecedented in human history in recent decades by flattening historical compounds in city centres to make way for luxurious malls and office towers, demolishing old communities, kicking out former residents and turning farmland around the cities into new urban blocks.

In historical cities like Datong in Shanxi province, the whole old town was torn down to build a new one in the name of development.

The state-run Xinhua news agency applauded the short notice last week from the land ministry as “a small step for Wenzhou, a big leap for China”.

But Ma Guangyuan, an influential Chinese economist, wrote in a column in the Southern Metropolis News that the practice of exempting homeowners from paying extra money may not necessarily spread to all Chinese homes in other areas.

“Considering the fierce power playing on land renewal in the past, I’m actually not very optimistic about seeing a solution over the short run,” Ma wrote.

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He added that land use right renewals involved vested interest groups, the public land system and were also related to property tax, complexities which “test the wisdom of top decision makers”.

Ironically, the legal foundation of the public ownership of urban land in China was formed almost overnight in 1982 when China’s constitution bluntly added a line on the issue.

Zhou Qiren, a professor at Peking University who studies China’s property rights, wrote in an opinion piece four years ago in the Economic Observer, a Chinese-language weekly, that the line was enshrined in the constitution as the then Chinese leadership was ready to “nationalise” land to pave the way for China’s much-needed industrialisation and it would be much easier to appropriate it if it was “publicly owned”.

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Land prices are now soaring in major Chinese cities, driving property prices to levels beyond what most Chinese households can afford.

Government revenues from selling “land use rights” amounted to 2.65 trillion yuan in the first 10 months of this year, an increase of 15.2 per cent from the same period in 2015, according to China’s finance ministry.