Thursday 14 June 2012

The art of keeping land idle in China

Beijing revises rules but enforcing them against developers is another issue

2 comments:

Guanyu said...

The art of keeping land idle in China

Beijing revises rules but enforcing them against developers is another issue

Vivian Chung
12 June 2012

Art collectors love to buy ancient artworks and put them inside their storerooms. After some time, their value and prices appreciate, enabling their owners to earn a significant profit.

Most property developers in China can be likened to art collectors. They do not collect precious artworks from Sotheby’s though. Instead, plots of land are what they treat as artworks. Leaving pieces of land idle 365 days a year is probably one of the best ways for them to make a profit.

According to a 2010 survey, 125 China-listed developers held up to 400 million square metres of undeveloped land. During the same period, 20 Hong Kong-listed developers had another 400 million square metres of idle city pasture.

All the developers held a combined 800 million square metres of idle land, a huge quantity which they could have otherwise used to build homes on for nearly 100 million people in that year.

The situation may be much worse today since developers had been slowing construction of their housing projects because of the home purchase and other curbs imposed by the government on the property market. Government revenue from land auctions between January and May this year has dropped 37 per cent to 189.26 billion yuan (S$38 billion) from a year earlier.

Last week, the government took a new course of action. The Ministry of Land and Resources said it has redefined its regulation on idle land, under which developers who keep idle purchased plots for more than a year are to be fined 20 per cent of the value of those properties. Pieces of land left idle for more than two years are to be taken back by the government.

The new guideline also provided a clearer definition of the term “idle state-owned land” which now refers to a plot where no construction work has been started a year after its owner has received a contract for land use.

It also refers to a piece of land where construction work is less than a third of the overall approved floor area. A plot may also be classified as idle if work on the proposed development project on a site has not reached 25 per cent of the combined cost of investment of the project within a year.

Does this tightening on the use of development sites really work?

The regulation has been in place since 1999. However, people have seldom heard in the past 13 years about developers being punished by the government for holding idle plots.

Almost every year, there have been media reports on this intriguing issue and some even have a list of developers with the most holding of idle land, based on data in the annual reports of listed developers. In spite of these reports, the government has not taken any action at all.

Provincial governments are not ignoring the central government’s policy. But they cannot work on their own without enlisting the active support of developers.

In China, provincial officials are in charge of providing state-owned land for auction. They are also tasked with the monitoring of developers, preventing them from keeping idle plots that they have purchased and ensuring developers’ compliance with regulations on the use of development sites.

The provincial governments actually serve as both referees and players on the pitch. They need developers’ cash so they can maintain governance of their localities. However, if players pay the salaries of referees, will these referees blow the whistle? This is the case in China.

Most of the land offered for sale to developers involves relocation of inhabitants with dwellings on the development sites.

When provincial governments give ownership of the plots to developers who successfully purchase them in auctions, local officials may not finish the relocation of affected residents. If some of the affected inhabitants refuse to vacate their premises, developers can’t do anything to utilise plots that they have purchased.

Guanyu said...

In instances such as these, provincial governments themselves are helping create more idle land. Developers and provincial governments may then engage in complaints and counter complaints against each other.

The new definition of what comprises idle land doesn’t change the rule of the game at all.

While the latest government move redefines what constitutes idle land and prescribes punishment for its non-use, there is no word on the monitoring of responsibility for a development site’s non-use.

What can the government do? The Ministry of Land and Resources can come up with a list of qualified developers.

It can also encourage developers to file complaints with authorities against rivals engaged in the idling of purchased plots.

If the veracity of a complaint is ascertained by authorities, the complainant may probably be given the opportunity to take possession of that plot and proceed with the completion of the proposed development project on that site.

Developers must love performing the role of a watchdog. - EJ Insight