Key Points:

  • Local authorities must jointly determine annual plans for land use and development for residential real estate
  • Local authorities must administer land grants for residential real estate more strictly

The Ministry of Land and Resources and the Ministry of Housing and Urban-Rural Development of the PRC promulgated the Notice on Further Strengthening the Administration of Land Use and Development for Real Estate (the Notice) on September 21, 2010, which is the second rule on the same topic in 2010. The purpose of the Notice is to implement assignments provided by the Notice on Resolutely Curbing the Soaring of Housing Prices in Some Cities, issued by the State Council on April 17, 2010. The key points of the Notice are as follows.

Annual Plan of Land Use and Development for Residential Real Estate

The Notice requires that local housing and urban-rural development authorities and local land and resources authorities jointly determine annual plans for land use and development for residential real estate, and release the land supply plan, time order of land supply and conditions of parcels of land to the public to guide market expectations. Such plans must ensure that 70 percent of the land supply will be reserved for indemnificatory housing, low-cost housing renovation, and small and midsize common commercial housing. If the land supply for these housing categories has not reached 70 percent, local authorities shall not supply any land for large and high-end housing. Further, the Notice points out that the development of large and high-end housing must be strictly limited. The floor area ratio of residential real estate must be larger than 1:1.

Grant of Land for the Development Residential Real Estate

To strengthen the administration of the land grant, the Notice stipulates the following rules:

  • Local authorities must provide the planning, construction and usage criteria for each parcel of land to be granted. Such parcels of land must be granted individually; they may not be combined with other parcels of land for the purposes of the grant. This rule prohibits local authorities from splitting one large parcel of land into several parcels for potential developers.
  • The ownership of land to be granted must be clear and legally indisputable. If the removal of existing housing and related compensation have not been completed, the associated land (undeveloped land) may not be granted. In practice, some developers participate in the removal of housing so that they may have a chance to obtain land earlier than others. According to this rule, this approach would no longer be acceptable.
  • After a parcel of land is granted, no party shall modify the planning and construction conditions of the parcel. If the developer requests a modification to the planning or construction conditions and therefore fails to commence construction as scheduled, the local land and resources authority must withdraw the parcel of land and restart the bidding, auction or listing procedures for the land grant. Construction for residential real estate development projects must commence within one year of the date of delivery of the land specified in the allocation letter or land grant contract, and the construction must be completed within three years of the commencement date.
  • When bidding for the land, the bidder must ensure that the deposit used for the land bid is not a bank loan, shareholder’s loan, entrusted loan or raised fund. The bidder must also provide a reference letter issued by the financial institution.
  • The land and resources authority must prohibit enterprises that have committed any of the following violations of laws or regulations from purchasing new land before the violation case is closed and relevant problems have been resolved: (i) forgery of official government documents and conducting land transactions illegally; (ii) illegal transfer of land use rights; (iii) keeping land idle for longer than one year; or (iv) developing real estate without complying with the provisions of land grant contracts.

Conclusion

This Notice – together with the notices on individual income tax and deeds in connection with real estate transactions, and policies on bank loans for housing issued at the end of September 2010 – is a part of a series of policies designed to curb the rise in housing prices and facilitate healthy development of the real estate market. Whether these policies will be effective is uncertain for now.