China’s grey-area for property buyers: homeowners face doubts over renewing land-use leases

PUBLISHED : Tuesday, 19 April, 2016, 12:10am
UPDATED : Tuesday, 19 April, 2016, 12:10am

Public concern over land-use rights in Wenzhou, Zhejiang province, has prompted official media to call for a clear legal framework concerning home ownership on the mainland.

Hundreds of homeowners in Wenzhou face uncertainty as their 20-year land-use leases approach expiration.

Local authorities have reportedly asked them to pay hundreds of thousands of yuan to renew each 20-year land lease on 70-year terms or risk losing ownership.

However, state-run news agency Xinhua has claimed these reports misrepresent the situation, citing Wenzhou’s department of land and resources.

On the mainland, the government retains theoretical ownership of the land on which all houses are built.

Wenzhou’s once-hot housing market comes crashing down

Individuals may own a house, but must lease the land itself from the government.

Since the commercialisation of the mainland’s property market in the 1990s, residential properties have been built based on land-use leases ranging from 20-70 years.

The shortest leases, such as those in Wenzhou, are now coming up for renewal.

The issue has arisen at a time that property prices in major cities such as Shanghai are surging, with some homeowners paying up to ­5­ million yuan (HK$6 million) for a two-bedroom home.

Millions of homeowners across the mainland are watching what happens in Wenzhou fearing that their own property investments could be thrown into question when their leases expire.

“It is a pressing issue. The government needs to resort to legal means to solve the problem,” Xinhua said, adding that a blurry definition of home ownership could potentially cause social unrest.

At the beginning of this year, official media called for a public discussion on the value of property investment. Many commentators thought the move was aimed at cooling the property market amid fears of a bubble.

“It doesn’t make sense if homeowners or their offspring are required to pay further millions of yuan to continue to own their houses,” said Shen Ye, 42, a Shanghai homeowner.

Good times and easy cash long gone in Wenzhou

“The way the government deals with the Wenzhou properties will be closely watched by millions of people.”

Before the commercialisation of the property sector, individuals were not able to own a property. Instead, state-owned companies or institutions built homes on land allocated by the government and distributed dwellings to their employees on a lease basis.

“The question could be answered when China officially starts imposing property tax,” said Joe Zhou, property service firm JLL’s head of research in China. “With the property tax, homeowners can continue to own their houses and automatically renew the land-use agreement after 70 years as long as they continue to pay the tax.”

Beijing is working on a new law governing property tax but is yet to announce a start date. Zhou said the property tax would be an annualised fee for using the land.