Following on from the Promotion of the Stable and Healthy Development of the Real Property Market Notice (Guo Ban Fa [2010] No. 4) issued by the general office of the State Council, the Ministry of Land and Resources issued the Issues Relevant to Strengthening the Supply and Regulation of Land for Real Property Notice (Guo Tu Zi Fa [2010] No. 34) on 8 March.
As the upward trend in property prices throughout the country was not effectively brought under control in the first quarter of 2010, on 17 April the State Council further issued the Resolutely Halting the Overly Rapid Rise of Urban Property Prices in Certain Cities Notice (Guo Fa [2010] No. 10).
The supply of land for housing
Notice No. 34 requires that land be set aside for social housing, the redevelopment of slum areas and the construction of small and medium-sized commercially developed apartments for owner-occupation, and that such land should comprise not less than 70% of the total supply of land available for the construction of housing.
The notice further requires that land for the construction of large apartments be strictly controlled, and prohibits the supply of land for detached houses. These policies were also reiterated in Notice No. 10.
Cracking down on land grabs
When proposals are made to grant land for ordinary commercially developed housing in the low- to mid-price range, controls on items such as the sale price, number of units, types and area of the units proposed by the competent real property authority must be incorporated into the plan and included in the grant contract, together with penalty provisions in the event of breach.
There is to be strict regulation of the floor price at which land is granted. The minimum grant price may not be lower than 70% of the reference price for the relevant grade of land in the area where the granted plot is located, and the bid deposit may not be less than 20% of the minimum grant price.
There is to be strict review of the qualifications of bidders for land. Municipal and county land and resource authorities are to prohibit land users who (1) are in arrears in the payment of land grant fees, (2) have land that is idle, (3) have engaged in land grabs and land speculation, (4) whose actual development capabilities are surpassed by the scale of the land to be developed and (5) those that have failed to perform land use contracts from participating in land auctions for a certain period of time.
There is also to be more stringent administration of land grant contracts. A grant contract must be executed within 10 workings days of agreement being reached on a land grant. The downpayment, equivalent to 50% of the grant fee, must be paid within one month of the execution of the contract and the remainder paid in a timely manner in accordance with the provisions of the contract and in any case within one year thereof.
Clamping down on flipping
Notice No. 10 specifies that for a household purchasing a second residential premises with a loan, the downpayment on the property shall not be less than 50%, and the interest rate on the loan may not be less than 1.1 times the benchmark rate. This provision clearly increases the minimum of not less than 40% for the downpayment previously specified in document Guo Ban Fa [2010] No. 4.
Notice No. 10 further provides that in areas where the price of commercially developed housing is too high, is rising too quickly or where the supply is tight, commercial banks may, based on the risk situation, temporarily suspend the extension of loans for the purchase of a third or more property.
Additionally, they may temporarily suspend the extension of housing purchase loans to persons who are not permanent residents of the area in question if they cannot provide proof that they have paid taxes or social insurance locally for at least one year.
Regulation of developers
Notice No. 10 provides that when a property developer participates in a land auction or while it is developing and constructing a project, its shareholders may not, in violation of regulations, provide it with loans, on-lent loans, security or related financing.
State-owned and state-controlled enterprises whose main business is not real property are strictly prohibited from participating in commercial land development and property management.
Commercial banks may not provide loans for the development of new projects to real property developers that have idle land or that have engaged in land speculation. The securities regulator will temporarily halt the approval of their listings, refinancing and material asset restructurings.
Further developments
Notice No. 10 stresses that while land will continue to be granted via the invitation of bids, auctions and listings on a land exchange, land grant methods such as “comprehensive bid evaluation”, “one off bidding” and “two-way bidding”, also need to be explored so as to check the unreasonable rise in the grant price of residential land.
The notice also requires the Ministry of Finance and the State Administration of Taxation to accelerate the study and formulation of tax policy to guide reasonable housing consumption by individuals and regulate the real property returns of individuals.
This language may be a hint that if the abovementioned control policies prove ineffective, the State Council may decide to impose the property tax that has been mooted for a considerable time but not yet introduced.
